Builders miss targets as realty sector slows down

The delays in clearance of plan sanctions and subsequent construction have badly hit the real estate sector in Bangalore. Nearly half-a-million square feet of retail space that was scheduled to be offered for possession in the city by the third quarter of 2008 has not materialised. The additional retail space is now expected to be completed by end of the first quarter (Q1) of 2009.

“In addition to the delay, the current global financial crisis is also likely to change the supply scenario in the coming years as most of the planned projects are yet to take off,” said Rajneesh Mahajan, director, retail services, Cushman & Wakefield India.

“The city’s main streets, meanwhile, remained active though with a relatively slower demand over the last quarter. Rentals remained stable with a downward trend expected in the near-future. A few retailers who had committed to take up space are expected to re-negotiate their lease terms in the light of the present slowdown,” he added.

Confirming the development, Shivram Malakala, executive director, Habitat Ventures, said, “Developers were deeply impacted by construction delays due to a sudden rise in raw material (cement, sand and steel) prices in the first-half of this year. This delay has affected many retailers who had planned to enter the market by September. Retailers normally eye the country’s biggest spending period which commences in September and goes up to January.”

During Q3, the city witnessed a few high-end retail space deals. The luxury mall — ‘The Collection’, on Vittal Mallya Road, Manzoni, a premium menswear store, Levi’s store and a men’s lifestyle store from Madura Garments have taken space.

“The increased interest from premium retailers in this micromarket is expected to take high-end retail activity spilling over to the adjoining Lavelle Road,” said Mahajan.

As for the retail space supply, Bangalore has over 35 mall projects in various planning and approval stages although under the present economic conditions most of them may become operational only by 2011 or later.

Prominent retail space to enter the market in 2009 are the Mantri Mall (600,000 square feet) in Malleswaram and Brigade Orion (750,000 square feet) at Rajajinagar, Sigma Mall (one million square feet) on the Outer Ring Road at Marathalli.

Shivram Malakala said, “Till Q3 the demand was more than supply. But, the delays mean that supply could increase in future.”

But Hemang Raval, managing director, Samruddhi Realty, said, “This situation of supply being more than demand is a temporary phase and is likely to last for six to eight months.”

“Mall operators had raised rentals six months ago and a few retailers had even signed up for the revised rentals. But now the situation has changed and it is the mall operators who are chasing good retailers,” he added.

As for the demand outlook for the city, Mahajan said, “The overall demand for retail real estate remains healthy in the city. Quality projects in the established residential pockets are likely to receive good responses. Demand will remain strong on the established main streets while rentals may remain firm; however, emerging main streets might see rental corrections.”