Retail makes hay in realty surplus

The tables have turned. Organised retail, which used to cite real estate as its first constraint, is being wooed by developers as there is a sudden surplus created by completion of pending projects and new construction.

"We are about to conclude two deals where we do not have to pay rentals for three years," said Kishore Biyani, the chief executive officer of Future Group and managing director of the group's flagship, Pantaloon Retail.

"The surplus of space is going to be larger in 2009," added Biyani. He declined to divulge the names of the property owners or the cities in which his company is signing the deal.

According to an industry analyst, the rental for a retailer used to constitute 4-5 per cent of its total revenue in the years 2001 and 2002, rising to 7-7.5 per cent in the later years. Industry analysts believe a retailer's profit would get eroded if the rental crossed 8 per cent of revenue.

According to Credit Rating and Information Services of India, orgnised retail in the country raked in Rs 1,01,600 crore in 2007-08, up from Rs 67,900 crore in 2006-07. 
 

* Organised Retail Rs 1,01,600 crore turnover in 2007-08 

* Total Floor space of over 101 million square feet in 2007-08 

* Rentals cost up to 7.5% of retail industry's turnover

"Some of the development of malls got delayed last year. However, most of the retailers completed their expansion plans with managing space at other places," said an analyst with a Mumbai-based brokerage who did not wish to be quoted.

Jones Lang LaSalle Meghraj, a real estate consultancy, said the maximum surplus this year would be in Panchkula, Mohali, Ludhiana, Jalandhar, Jaipur and Chennai.

"The national capital region is likely to have a surplus by next year," said Anuj Puri, chairman and country head of the firm.