Falling property rentals keep retail boom going
The retail boom is here to stay. Inflation may be worrying organised retailers in the form of falling footfalls but softening real estate prices will help them to continue with their planned expansions. In certain markets, the decline in rentals has been to the extent of 5 to 10 per cent and some industry players foresee a further fall of 15 to 20 per in the next few months.
Big Bazaar, Shoppers’ Stop, Provogue,Vishal Retail are going ahead with their expansion as planned. A general slowdown, rising of interest rates for home loans and liquidity crunch indicate that the rental rates may dip further.
Big Bazaar will add 60 new stores by June 2009. It currently has 91 stores across the country. Rajan Malhotra, CEO, Big Bazaar said, “The past boom of real estate saw many investors backing projects with incredibly high prices. They may now find it difficult to hold on to the same.”
Govind Shrikhande, CEO of Shoppers’ Stop, agreed with the expectations of falling rentals. He said,“Logically the rates should come down by over 10 per cent in the next few months. We see a realisation among partners that business cannot sustain with such high prices.” Shoppers’ Stop plans to fund part of its expansion from its proposed rights issue of Rs 500 crore.
Provogue, which is planning to add 40 new stores this year is also on track with its plans and considers expansion necessary as it will give the retail chain access to new markets. Provogue’s managing director Nikhil Chaturvedi, however, admitted to a slowdown, “There is definitely a slowdown and a 10 per cent reduction in same store sales when compared to last year’s figures.”
Vishal Retail will add 90 stores this year, of which 19 have already been opened. Manmohan Agarwal, CEO, corporate affairs, Vishal Retail said, “The rates have more or less stabilised in the past few months. We feel that they will soften further by 5 to 10 per cent in the next few months when a lot of projects will be completed and the supply will exceed the demand.”
For Megamart- the retail chain of Arvind Ltd the footfalls have dropped by 10 per cent and hence, the chain is wooing consumers with discount offers and freebies to raise the average ticket price. However, it has already decided upon which properties to expand in the coming year. KE Venkatachalapathy, COO, Megamart & Retail, Arvind Brands said, “The rentals are down by 5 to 10 per cent in some markets and we foresee a further drop of 15 to 20 per cent.” There are 87 Megamart stores as of now, which will go up to 125 by March 2009.