Retail rentals set to soar

Retail rentals are set to head north with the Cabinet’s decision to allow more direct foreign investment in retail. Once foreign retailers start coming, the demand for space will increase, pushing up rentals, at least in metros.

Madan Sabnavis, chief economist at CARE Ratings, said the entry of foreign players would not ease inflation, as rentals and land prices would go up. DLF’s executive director, Rajeev Talwar, agreed rentals would rise, but said “it is too premature to say by how much”.

Anshuman Magazine, chairman and managing director of CB Richard Ellis (South Asia), said in the medium term, prime micro markets in metros might see rentals going up marginally. “In two years or so, prices can go up. However, that will depend on how the demand moves,” he said.

Kaustuv Roy, executive director, Cushman and Wakefield, said rentals would increase, but in high street and successful malls. “The quality of real estate will change in the form of mall designs, as they will be made to meet international standards,” he said, adding it would be a tough battle for domestic brands.

Qubrex managing director Sanjay Sharma argued foreign brands would have the bargaining power, and would not like to set operations at high rental costs. “Since these brands will attract footfalls, mall owners will have to give in, unlike in the case of domestic players,” he said.

Roy cited the example of Bharti Walmart, which has its cash-and-carry stores in Tier-II and -III cities due to availability of land and lower costs. “This may be the strategy of other foreign players, too,” he said.

Magazine, however, said given the global economic slowdown, we would not have a situation of foreign players stepping on each other’s toes to enter India.

“Plus, our purchasing power is not that high in the tier 2 and tier 3 cities that will benefit the foreign chains too much,” he added.