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State of the Retail Real Estate in India Market Trends and Outlook May 2012 Himadri Mayank AVP-Research and REIS


Size of the Retail Sector Total market size of retail at USD 425 billion in 2010, which has been growing at a CAGR of 7.6% since 2000. 450

425

400

80%

321

300

70%

278

60%

238

250

200

90%

368

350

201

100%

50%

204

40%

150

30%

100

20%

50

10%

0

0% 1998

2000

2002 2004 2006 Market Size (in USD Billion)

2008

2010

Source: Economist Intelligence Unit

85%

81% 55%

40%

30%

20% 6%

USA

Taiwan Malaysia Thailand Indonesia China

Organised

India

Unorganised

Source: E&Y, 2010-11

Organised retail penetration remains very low at only 6%, incomparable to developed economies, which have over 80% under the organised retail sector. Source: Real Estate Intelligence Service (JLL), 1Q12


India - Growth of Organised Retail Share of organised retail slated to grow from 6% in 2010 to 9% by 2015 and to 20% by 2020

Expected Economic Growth 7-8% Rapid Urbanisation

Hypermarkets to dominate organised retail sector Young Demographics with Rising Income

Relaxation in Policy to Support Investments Pressing need to improve supply-chain efficiencies

Easy Access to Rise in Brand Credit Consciousness Source: Real Estate Intelligence Service (JLL), 1Q12


The Growth of Retail Malls


The Growth of Retail Malls As of December 2008, there were 173 malls expected to become operational during 2009-2011 in the top seven cities @ 1 mall per week!

Source: Real Estate Intelligence Service (JLL), 1Q12 Note: Figures represent the top seven cities of India – Mumbai, NCR-Delhi, Bangalore, Chennai, Pune, Hyderabad and Kolkata.


Rationalisation of Mall Supply (2008) As of December 2008, there were 173 malls expected to become operational during 2009-2011 in the top seven cities @ 1 mall per week! FORECAST

Source: Real Estate Intelligence Service (JLL), 1Q12 Note: Figures represent the top seven cities of India – Mumbai, NCR-Delhi, Bangalore, Chennai, Pune, Hyderabad and Kolkata.


Rationalisation of Mall Supply (2009) Only 25% of the projected supply in 2009 became operational. Several malls were delayed, while some in initial stages were shelved or converted. Supply as of End-2009 FORECAST 30

(million sq ft)

25 20.0

20

17.3

13.9

15

9.4

10

8.5 6.3

5

3.4

3.8

3.7

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Real Estate Intelligence Service (JLL), 1Q12 Note: Figures represent the top seven cities of India – Mumbai, NCR-Delhi, Bangalore, Chennai, Pune, Hyderabad and Kolkata.


Rationalisation of Mall Supply (2010) As retail became the last to recover among the real estate sectors, 60% of the projected supply of 2010 was also delayed to 2011. Supply as of End-2010

FORECAST

30

(million sq ft)

25 19.3

20

13.8

15

9.4

10

8.5 6.3

5

3.4

3.8

12.3

6.9

3.7

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Real Estate Intelligence Service (JLL), 1Q12 Note: Figures represent the top seven cities of India – Mumbai, NCR-Delhi, Bangalore, Chennai, Pune, Hyderabad and Kolkata.


Rationalisation of Mall Supply (2011) 34 malls became operational supplying 13.8 million sq ft of mall space in 2011. 90 malls expected to become operational during 2012-2014 @ 5 every 2 months. Supply as of End-2011

FORECAST

30

(million sq ft)

25 20

17.2 13.8

15

12.0 9.4

10

9.5

8.5 6.3

5

3.4

3.8

6.9

3.7

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Real Estate Intelligence Service (JLL), 1Q12 Note: Figures represent the top seven cities of India – Mumbai, NCR-Delhi, Bangalore, Chennai, Pune, Hyderabad and Kolkata.


Supply and Demand of Retail Mall Space Absorption of retail space more than doubled to reach 10.7 million sq ft. Supply in 2012 is near completion, while half of the supply of 2013 and most in 2014 have high construction risks. FORECAST

16

13.8

2

2.8

10.1 7.1

12%

2006

2007

2008

2009

New Completions

4.0 2010

2011

Net Absorption

2012F

2013F

Proposed Excavation / Upto Plinth Less than 50% Structure Ready

4%

50%-100% Structure Ready Ready for Fit-Outs

0%

Completed

8%

0 2005

20% 16%

8.4

8.1 6.9 4.0

3.8

4

4.1 3.7

6.6

6

6.3

8

8.5

9.4 9.6

10

24%

12.0

10.7

12

28%

14.2

14

32%

2014F

Vacancy Source: Real Estate Intelligence Service (JLL), 1Q12

Note: Figures represent the top seven cities of India – Mumbai, NCR-Delhi, Bangalore, Chennai, Pune, Hyderabad and Kolkata.


Status of Construction of Upcoming Retail Malls Hyderabad and NCR-Delhi have several malls under construction, but a significant portion is under initial stages. Mumbai, Pune, Chennai and Bangalore have few malls in the supply pipeline. Thus, there is a severe crunch of suitable mall space for retailers.

Source: Real Estate Intelligence Service (JLL), 1Q12


Retail Trends: Stock vs Vacancy 1Q12

PAN-INDIA VACANCY

NCR-Delhi and Mumbai constitute two-thirds of pan India retail mall space. Considerable retail activity remains on the traditional high streets of India. 30

Stock (million sq ft)

25 20 15 10 5

NCR-Delhi

Kolkata, Hyderabad, Chennai and Bangalore have relatively low stock and low vacancy. These cities have considerable activity on high streets.

NCR-Delhi and Mumbai lead others by a huge margin in terms of operational retail stock; have high vacancies in secondary districts.

Mumbai

Bangalore Hyderabad

Kolkata

Pune

Chennai 0 0%

5%

1Q12

10%

15%

20% Vacancy (%)

25%

30%

35%

40%

4Q13F Source: Real Estate Intelligence Service (JLL), 1Q12


Retail Trends: Stock vs Vacancy 4Q13F NCR-Delhi expected to remain dominant with over 25 million sq ft of operational mall space by end-2013. Vacancies are expected to increase in the short term due to supplyabsorption mismatch. 30

Malls expected to become operational in 2012 and 2013 will increase stock in Mumbai and NCR

20

NCR-Delhi

Mumbai

15 10

Bangalore

Kolkata

Pune

5 Hyderabad

PAN-INDIA VACANCY

Stock (million sq ft)

25

Chennai

3.3 million sq ft of expected supply till 2013 in Chennai

0 0%

5%

1Q12

10%

15%

20% Vacancy (%)

25%

30%

35%

40%

4Q13F Source: Real Estate Intelligence Service (JLL), 1Q12 Note: 4Q13F values for stock and vacancy rate are REIS forecasted values


Retail Trends: Polarisation of Demand Good quality malls enjoy high occupancy levels while poor quality malls continue to struggle with high vacancy as they fail to garner retailer interest. Vacancy in Operational Malls Superior Average Poor Grade Grade Grade

All

NCR-Delhi

6%

28%

40%

25%

Mumbai

10%

34%

47%

23%

Bangalore

2%

17%

33%

9%

Chennai

0%

29%

NA

14%

Pune

17%

18%

21%

18%

Hyderabad

4%

6%

12%

6%

Kolkata

6%

28%

45%

21%

India

7%

26%

39%

20%

• Success chases success. Retailers are interested in taking spaces in only through those malls that attract higher footfalls and have a healthy footfall-to-sales conversion ratio. • Superior Grade Malls offer  good location  lease-only model  experienced developer profile  professional mall management  active tenant mix management

Source: Real Estate Intelligence Service (JLL), 1Q12


Movement of Rental Values (1Q08 – 1Q12) After declining sharply in 2009, rents remained stable for most parts of 2010. They have since recovered gradually in several markets, but remain near cyclical lows.

Simple Average of % Q-o-Q Change in Rental Values of Constituent Micro-Markets GROWTH SLOWING

RENTS DECLINING

DECLINE SLOWING

RENTS RISING

ANNUAL FORECAST

Rental Movement

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2012 2013 2014 1Q08-4Q14F NCR-Delhi 0.0% -3.0% -9.8% -21.1% -12.1% -8.4% -8.7% -5.8% -3.9% 0.0% Mumbai

1.1%

Bangalore 0.0% Pune

0.0% -14.5% -15.3% -12.2% -5.4% -3.0% 0.0%

0.0%

0.7%

1.6%

1.3%

0.9%

0.0%

1.7%

5.0%

6.4%

6.3%

0.0%

0.0%

0.0%

0.0%

0.0%

2.4%

1.8%

2.9%

0.4%

1.4%

4.3%

6.0%

7.1%

-2.6% -8.0% -7.6% -5.8% -2.7% -1.5%

0.0%

0.0%

0.0%

0.0%

3.5%

1.3%

0.0%

0.0%

1.4%

4.4%

6.4%

6.7%

0.0%

0.0% -16.6% -7.9% -5.6%

0.0%

0.0%

0.0%

0.0%

0.0%

2.4%

0.9%

1.3%

1.6%

1.1%

0.0%

1.9%

5.4%

6.6%

7.2%

Hyderabad 0.0%

0.0% -11.3% -13.9% 0.0%

-6.5%

0.0%

0.0%

0.0%

0.0%

0.0%

0.8%

0.0%

0.0%

0.0%

0.0%

1.0%

2.9%

3.9%

4.8%

-8.2% -12.7% -10.9% -2.6% -1.9%

0.0%

0.0%

0.8%

0.0%

0.9%

0.7%

0.6%

2.4%

3.5%

1.2%

4.0%

5.8%

4.0%

Kolkata

2.6%

1.9%

Source: Real Estate Intelligence Service (JLL), 1Q12


The Recipe for Success


Average Size of Shopping Mall

12,00,000

10,00,000

300,000

400,000

700,000?

2001 - 2006

2007 - 2010

2011 - 2013

2014 - 2017

6,00,000 4,00,000 2,00,000

6,00,000 5,00,000 4,00,000 3,00,000 2,00,000 1,00,000 -

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

-

Average Size of Superior Grade

Crosses 200,000 sq ft in 2007

440,000 sq ft

2017

2016

150,000 sq ft

2015

190,000 sq ft

2014

Expected to cross 300,000 sq ft by 2014 2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

Average Grade

2001

(Average Size in sq ft)

For All Operational Malls

200,000

8,00,000

2001

For Malls Becoming Operational in a Particular Year

(Average Size in sq ft)

Average size of a shopping mall in India has been increasing due to developers focusing on larger shopping malls. Success of a mall does depend on its size, as superior grade malls are nearly double the size of average grade malls.

Poor Grade

Source: Real Estate Intelligence Service (JLL), 1Q12 Note: Figures represent the top seven cities of India – Mumbai, NCR-Delhi, Bangalore, Chennai, Pune, Hyderabad and Kolkata.


What makes a mall successful in India? Prime locations, but not necessarily at the centre of the city

600,000 – 800,000 sq ft Leasable Area

Location 50% of the malls have at least one anchor store with area greater than 60,000 sq ft Anchor Store Multiplex essential to ensure sufficient footfalls

Less than 5% Vacancy

Entertainment

Professional Mall Management Services

Adequate Parking

Ample Mall Amenities

From the analysis of 20 successful malls across major Indian cities | Ambi Mall, Vasant Kunj, Delhi | Ambience Mall, Gurgaon | City Centre, Kolkata | DLF Emporio, Delhi | Express Avenue, Chennai | Forum Mall, Bangalore | GVK One, Hyderabad | High Street Phoenix, Mumbai | Inorbit, Hyderabad | Inorbit, Malad, Mumbai | Inorbit, Vashi, Mumbai | Korum Mall, Thane | Mantri Square, Bangalore | MGF Metropolitan, Gurgaon | Oberoi Mall, Mumbai | Pacific Mall, Delhi | R-City Mall, Mumbai | Select City Walk, Delhi | South City Mall, Kolkata | The Great India Place, Noida |


Future Formats of Retail Real Estate in India


Retail Formats – Ushering an Era of Collaboration Industry will experiment with several organised retail formats by collaborating with multiple stakeholders  Lack of luxury malls  Retail development at  Integrated residential  Luxury brands tourist hubs townships limited to Tier I on  Partnership with  Hotel-and-luxury retail high-streets or Fivegovernment  Office-and-convenience Luxury Star Hotels retail Retailing

Tourism Retailing

Mixed Use Formats Rural Retailing  Recreational shopping precincts

Destination Retailing

 Organised retail for 70% of India’s population Source: Real Estate Intelligence Service (JLL)


Affordable Retail Space for Inclusive Consumerism PROS  Agricultural sector employs nearly 52% of the country’s work force.  Improving income levels to spur inclusive consumerism in small towns and villages  Several conglomerates with interests in agro-based industries have ventured into rural retailing with mixed success. CONS  Economies of scale can only be tapped by high initial investment in supply chain, which is a barrier of entry.  Income of rural households largely dependent on agriculture, which in turn depends on rains.

मकान और नौकरी रोटी और कपडा Maslow’s Hierarchy of Needs

DCM Sriram– Hariyali Kisan Bazaar

ITC – Chaupal Sagar

Triveni – Khushali Bazaar

Source: Real Estate Intelligence Service (JLL)


For more details, contact: Ashutosh Limaye Head of Research and Real Estate Intelligence Service Ashutosh.limaye@ap.jll.com Himadri Mayank Assistant Vice President, Research and Real Estate Intelligence Service Himadri.mayank@ap.jll.com

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Copyright Š Jones Lang LaSalle, 2011

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State of Retail Real Estate in India