As Foreign Brands Line Up For Quality Retail Malls, Frequent Churn Becomes A New Norm

Entry of big foreign brands defines divide between successful and unsuccessful malls, rush for space in ‘performing’ malls is on

Anuj Puri picAnuj Puri, Chairman and Country Head at JLL India

JLL Research’s latest report ‘Is Indian Real Estate Heading Towards A Tectonic Shift?’ examines the transitions that India’s real estate has undergone over the past decade. Among the major trends is how the new breed of retailers is driving demand for quality retail supply and leading to frequent churn in retail malls.

Gone are the times when contract period tenures were typically in the range of 18-20 years for anchor tenants and 9-10 years for smaller vanilla retailers. More recently, contract periods have been shortened to anywhere between two and five years for vanilla retailers. Resultantly, in a few good malls with roaring business, the rate of churn has increased considerably.

ap malls tb 1On an average, when business is good, churn rates of around 15-18% have been recorded. This is abnormally high considering that it used to be in the range of 4-8% in well-managed malls in the initial period.

The good part of this churning, however, is that the market is realising its true value. Leading malls enjoy the privilege of deciding which brand to house and continuously monitor all stores that follow a revenue-sharing model, over and above a minimal fixed rental.

The revenue-sharing model has been increasingly in use to ensure both developers and retailers put in equal efforts to drive-in the much needed footfalls to the mall. Hence, non-performing brands are being weeded-out within fairly short periods of time and others being coaxed or forced to shift floors for better-performing brands to be accommodated.

Global as well as leading domestic brands either prefer to lease space in premium malls or go for high-street locations. In a way, there is pressure on malls to partner with only highly productive brands, or risk succumbing to competition from other malls in the vicinity. Good malls are currently in demand.

Foreign retailers expanding reach/ favour good malls

An increasing number of international brands want to enter India and lease space in high-performing malls. For instance, all national and international brands want to get launched from either a Select CityWalk or DLF Promenade in Delhi and High Street Phoenix, Oberoi, or Palladium in Mumbai.

Foreign retailers did not occupy more than 15% of the total retail space in organised malls in 2005, which increased to 18% in 2010, and close to 22% currently. Entry of big foreign brands such as Marks & Spencer and Zara has led to a jostle for space within the good performing malls. It is the entry of these players that has resulted in a divide between successful and unsuccessful malls, as they heavily favour the former even at a higher cost.

ap malls tb 2

The presence of foreign retailers is only going to rise in India, given that many brands have already expressed their intention to start operations here. This will make churn all the more necessary and rewarding. Already, mall developers have gone ahead and bought-out contracts of brands in order to accommodate a more premium brand.

A combination of factors is responsible for churn rates going up so high:

  • Poorly performing retailers exit malls midway through their lease contracts,
  • Landlords (or developers) initiate churn to improve their portfolio of tenants at some locations while at unviable locations, retailers drive the churn,
  • eCommerce players establishing/ expanding their brick-and-mortar presence – possibly on the back of big funding through foreign direct investment (FDI) or private equity.
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Developers Reduce Apartment Sizes To Boost Affordability

While capital values remain steady, apartment sizes are shrinking across cities

 Anuj Puri picAnuj Puri, Chairman and Country Head at JLL India

JLL Research’s latest report ‘Is Indian Real Estate Heading Towards A Tectonic Shift?’ examines the transitions that India’s real estate has undergone over the past decade. Among the major trends is how developers have been decreasing apartment sizes to suit affordability of buyers.

Builders are exploring innovative ways to make residential housing across major cities more appealing to potential buyers at a time when it is increasingly becoming difficult to sell expensive apartments. Around the country, builders are emulating the famous sachet marketing strategy adopted by FMCG companies in the late 1990s.

Unable to sell expensive homes in a sluggish market, builders across India are making smaller apartments without lowering the price per square feet and compromising on the quality of product. In the last five years, average apartment sizes falling across all major cities of India.

The following chart shows the varying degree of fall in apartment sizes:

ap tb 1 apt

Mumbai Metropolitan Region (MMR) – including Mumbai, Thane and Navi Mumbai – witnessed the maximum fall in apartment sizes on annualised basis, along with Bangalore, Chennai and Kolkata. Other cities also witnessed varying degree of fall in median apartment sizes.

Mumbai, which already had smaller and compact apartment sizes compared to other cities, saw a decrease of 26.4% in the past five years. For the same time period, Bangalore registered a 23.7% reduction in average apartment sizes followed by Chennai at 22.2% and Pune at 7%. Chennai continues to deliver the largest unit sizes today among tier-II cities and Bangalore in tier-I cities.

The dynamics of apartment sizes have a tale to tell – that developers are paying conscious attention to consumers’ requirements. The fall in average apartment sizes across all top seven cities is a clear indication that developers intend to make houses affordable for buyers by reducing average apartment size instead of reducing the capital values. While property prices are not purely a product of developer’s discretion, the decision to alter apartment sizes as per the needs and spending power of buyers is definitely within their ambit.

Changing buyer preferences

Several urban buyers are increasingly looking for new homes near their office locations which could be small in size. They prefer a house that is sufficient enough for their family requirements. This does not mean that they are compromising on their lifestyle, but prefer a small compact home equipped with all basic amenities.

Buyers are increasingly opting for homes that are closer to work-places in order to reduce commute times. As these locations are expensive compared to the suburbs, buyers may be able to afford smaller units, which is more than acceptable. To enjoy the luxury of bigger homes with good amenities, they prefer to buy homes in peripheral areas of the cities, from where the concept of second homes is emerging at outskirts of the cities.

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Smart Cities 101: The Questions Indians Are Asking

Anuj Puri picAnuj Puri, Chairman & Country Head, JLL India

While a lot is being discussed and written on Smart Cities, these discussions tend to focus on lofty urban planning perspectives and complicated economic hypotheses. This has resulted in Smart Cities becoming something of an unfathomable doctrine rather than something that makes sense to Mr. Everyman.

There are some fundamental questions that people have been asking about Smart Cities, and they need to be answered.

  • Which are the services that a smart city will offer which are not available in ‘normal’ cities? Are we just talking of township level services provided at the level of an entire city, or is there something more that citizens of Smart Cities can look forward to?

eco smart cityThe objective of Indian government’s Smart Cities initiative is to improve the quality of urban living for all residents with the use of smart technologies. That said, the transformation from a ‘normal’ city to a ‘smart city’ is more evolution than revolution. A smart city is different than normal cities in terms of liveability, workability and sustainability. The information and communications technology (ICT) component used in infrastructure will do most of the heavy-lifting work such as improving infrastructure, environment and governance through data-driven systems.

Apart from highly advanced infrastructure and evolved residential experience, citizens of Smart Cities will also get advantages like:

  • Overall digital connectivity, which means that broadband communications infrastructure and innovative services will combine to meet the needs of the Government and its employees as well as citizens and businesses
  • Collective intelligence, which not only helps urban planners and increases the city’s competitiveness but also provides opportunities for active participation from citizens in processes that make Smart Cities smarter
  • Open government thanks to open data.
  • It has been said that Smart Cities will need smart citizens to be truly viable. What does this mean? Will only tech-savvy younger citizens be able to derive and enjoy all the benefits of a smart city, or can people without a technological background also benefit?

It would be a mistake to assume that only high-earning college graduates or tech-savvy younger citizens will receive the benefits in Smart Cities. The objective of this movement is to improve the quality of urban living for all residents, not just the young and rich. Nevertheless, Smart Cities will still have to ‘sell’ themselves to the common man, who will need to be made aware of how this transformation could improve their lives. With the deep penetration of smartphones into our society, getting citizens to understand the value of connectivity should not be too big a challenge.

  • Given the level of services that will be offered in Smart Cities, will it in fact be more expensive to live in them? Will residents have to pay a big share of the implied expenses (as they do in townships) or will government subsidies take care of it?

To think that better services will come with additional costs is a mistake, since the smart initiatives employed in these cities will reduce many costs and improve productivity, in turn reducing the burden on their residents. Also, Smart City implementation will mostly come as a government subsidy and not as a loaded expense on residents.

  • Is it easier and more viable to launch a ‘greenfield’ smart city in an untouched location from the ground up or convert an existing ‘brownfield’ city into a smart one?

The evolutionary transformation (an existing city’s development into a Smart City) will prove to be more affordable than revolutionary (Greenfield) development. However, revolutions inspire a lot more emotion and commitment than evolutionary changes. India needs more retrofitting of existing cities and infrastructure through the Smart Cities initiative, and not just development of Greenfield cities.

It would be easier to develop Greenfield Smart Cities, except for the aspect of land acquisition. The current controversies associated with land acquisition bill and the lack of an environment that enables land acquisition easily, seamlessly and without delays would be a serious bottleneck in positioning these Greenfield Smart Cities. The advantages for positioning Greenfield Smart Cities are numerous: proactive planning and design would mean that there are little or no difficulties related to upgradation and/or improvement of smart systems. Greenfield Smart Cities would also allow for better management and forecasting for budgetary expenses, and it would be easier to expand capacities, with minimal disruption of city operations, at a later stage.

  • Will the formation of one smart city cause property prices to rise unnaturally in adjoining areas, even if these areas do not provide the quality of life that the smart city does? This has been observed happening with large integrated townships.

Areas with better infrastructure will fetch better real estate value due to higher demand and hence, in Smart Cities formation, land and property values will increase. The implementation of Smart Cities will have to be looked at in totality instead of a few locations in isolation.

  • Given the pattern we have observed in all newly-emerging locations, will property rates in Smart Cities be driven up by speculative investment, or is there some kind of built-in factor which will prevent this?

If Smart City principles are implemented strictly, these property markets will address demands of the end-users and not speculative investors. The formation of housing development corporations and other authorities as part of smart governance will prevent speculation from these realty markets.

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E-Registration: A Major Step Towards Real Estate Market Transparency

Ashwinder Raj SinghAshwinder Raj Singh, CEO – Residential Services, JLL India

The most frequently-occurring type of disagreement in Indian real estate is land dispute. Cases range from of illicit land grabbing and illegal land sales to instances of purchase of land where no actual purchase has taken place – to name just a few.

The real estate market has historically been plagued by such issues, and the current government’s initiative of facilitating e-registration to streamline the registration of immovable properties is an extremely progressive move which has been universally welcomed for its transparency and ease of use.

e registrationE-registration has simplified the process for providing evidence of titles and facilitating transactions, and will go a long way in preventing the unlawful disposal of land. This online registration system effectively put paid to the various underlying problems and loopholes in the traditional land registration process, based on the Land Registration Act of 1925, which typically involves Powers of Attorney, sale or mortgage of land and transfer of property under rent.

The Land Registration Act of 2002 introduced this new system using verified electronic signatures to transfer and register immovable property online.

The All-Important Tree Of Ownership

If a piece of land has been passed on for generations or has seen multiple owners over time, a proper hierarchy of land holding needs to be available so that current buyers or tenants can ascertain the exact value of land or the rent according to current market values.

This is possible only when there is complete transparency in document verification and full disclosure of details about the property – gross carpet area, number of rooms, foundation details and wiring blueprints. Nothing should be hidden from the future investor/buyer. E-registration has provided a much-needed level of transparency to property dealings.

The Role Of A Broker After e-Registration

Does e-registration also negate the need for a real estate broker? This is a fair question. While all details of the property may be available online, this may not be enough information to make a firm investment decision. The question of whether a particular property, regardless of how many details are available online, makes good investment sense in light of many other options can only be answered by a knowledgeable consultant.

The fees a broker will charge are definitely reduced by e-Registration, but a broker is still required – not only to provide inputs on the advisability of the investment proposition, but to mediate between the involved parties and help negotiate the price.

E-registration Procedure In Urban And Rural Areas

Since property in both urban and rural areas property comes under the jurisdiction of the same State Government and both types of areas are managed under a Tehsil (aka taluka or mandal) the e-registration of property (housing or commercial rental) is fairly similar. The process will only differ if the land is vacant or occupied (built upon). For vacant land, valuation is done at current market price while for occupied land (with built-up properties like shops, flats, cottages, etc.) it is done on the market price as well as the gross investment utilized by a building. For instance, a single-storied house will be valued higher than a multi-storied house if it is a prime location. Otherwise, the latter commands a higher valuation. Also, leases of immovable property in urban areas command a higher stamp duty (6%), while in rural areas it is lower (5%).

Benefits of Land e-Registration

  • The usual resource challenges at Registrar offices are reduced drastically, allowing them to tend to more sensitive matters like disputes.
  • Consumer pays a registration amount which is relatively affordable.
  • There is no longer any need to visit different offices to register a property
  • The details and documents pertaining to land records can be accessed online at any time.
  • Transparency in the registration process increases significantly, thereby also rationalizing broker fees and negating the need for bribes to officials
  • The software calculate the stamp duty on the basis of the stored data, and the duty can be paid online
  • A state-of-the-art system will reveal the current market price of any land located at any location within the State

How To e-Register Land

The procedure of doing e-Registration of land is simple. The land registration and application form can be either downloaded online or obtained from the concerned authority’s office in the state. After the verification of form details and the related documents of the concerned person, the land is registered in a matter of days, and this marks the completion of the registration process and establishing the full-accredit ownership of the property.

Safety Of E-registration Of Land

E-registration is pretty safe. Hackers can do nothing to compromise documentation, as they do not have access to the papers owners hold relating to their land, such as transfer of Power of Attorney, land purchase deed or wills of deceased person who were entrusted with the protection of the property. Also, since most government servers are SSL encrypted with multiple layers of security and a personalized login system, it is not easy to hack consumer’s details.

However, to check the authenticity of the buyers and sellers, it is always best to consult a professional real estate consultant who has proper knowledge about the sector. Efficient background research is always the crux of any good and profitable land deal. It is important to establish that a land’s claim is retained by the owner, and that there is no scope for the land mafia or government to contest it.

Also, before signing a deal, it is always advisable to visit the site at least twice (giving a gap of a few months) in the presence of the seller or buyer in order to verify overall authenticity.

Where Is E-Registration Already Being Used?

States such as Kerala, Orissa, West Bengal, Karnataka, Tamil Nadu, Rajasthan, Jharkhand, Sikkim, New Delhi, Maharashtra, Madhya Pradesh, Punjab and Chhattisgarh have the facility in force since as long as the 1990s. Such states have developed the Common Services Centre (CSC) Scheme where all registrations are verified.  These CSCs cover almost all the rural and urban areas.

What About Old Property?

For older property, the process is simple. Consumer need to register the following documents:

  1. Power of Attorney (sale, transfer, hold or deconstruct).
  2. Non-testamentary instruments which purport directly to or operate to create, declare or assign any right, title or interest of the value of one hundred rupees and upwards, to any kind of immovable property (inherited land).
  3. Non-testamentary instruments which acknowledge full receipt of payment of any consideration on the transfer of ownership to a new owner.

What Do Real Estate Experts Say?

  • Real estate experts are in favour of registration of land, especially e-registration, since it helps them to focus on larger projects.
  • Since e-registration adds transparency to the nation’s real estate, it also adds credibility to each real estate agents’ and expert’s credentials.
  • It helps to secure deals that will not land up in legal troubles, since non-registration can lead to significant legal trouble.

Overall, one should always register (or e-register) their land dealings and purchases to add a credible name to the entire holding or immovable property comprised therein at that space of land. In cases where there is a need to confer any kind of power – especially in patriarchal or commercial holdings – land registration helps the government to ascertain the rightful owner and avoid family feuds.

Also, e-registration helps in quickly producing evidence of any transaction that affects the property or confers special powers to an individual or firm. It pays to remember that a land owner does not exist in the eyes of the government unless the land has been registered. To avoid the risk of personal land being impounded, it makes sense to register all the land documents online today at the respective State’s online website.

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Divide Between Successful, Unsuccessful Malls Widens

The difference in the overall vacancy rate between successful and unsuccessful malls stands at more than 10% across major Indian cities. Around 14 malls, having a combined mall space of 3.5-4.5 million sq ft, are expected to withdraw from retail operations in the near future

Anuj Puri picAnuj Puri, Chairman and Country Head at JLL India

JLL Research’s latest report ‘Is Indian Real Estate Heading Towards A Tectonic Shift?’ examines the transitions that India’s real estate has undergone over the past decade. Among the major trends is the growing divide between successful and unsuccessful malls in India.

In the past few years, developers reduced supply of mall space in India due to rising vacancy levels. However, prior to that, developers had resorted to break-neck pace of construction of malls in response to a spurt in organised retail business.

ap divide tb 1

Irrespective of the design quality, mall management practices and so-called best practices, developers continued to supply retail space on the back of growing demand from existing and new retailers. Back then, few developers had realised the right ingredients for constructing a successful mall. Post the slowdown in Indian economy in 2010, realisation seeped in that quality is required for enduring results.

Unlike commercial buildings, whose tenants are stable and share common facilities, management of retail malls is complex. Apart from catering to various brand categories, mall management also involves planning the right tenant mix, space optimisation and zoning, and constantly studying shopper behaviour. Malls need to collect feedback from visitors to be relevant in all seasons. Otherwise, they will be out of the competition.

Some malls perform poorly as they are unable to define the mall type, lack research on catchment and selection of wrong partners. By turn of the current decade, it was evident that mall management was not in the genes of every developer.

The haphazard manner of constructing malls without due-diligence left quite a few malls sick. The overall vacancy rate today stands high at ~20% in retail malls across major Indian cities. On the contrary, malls that run successfully have vacancies of not more than 10%, with a selective few ones operating near full capacities.

In recent years, we have seen bad malls beginning to succumb to the business viability stress and giving up hope. Consequently, these malls are either converting into Grade-B office spaces or getting demolished to make way for a new asset class in real estate.

Many experts believe that most of the poorly designed malls that are shutting down or converting into Grade-B office spaces are those constructed in the early years and have become old. This is at best a misconception, because market examples suggests that many old malls still find relevance in a market that rewards better design and mall management.

ap divide tb 2

In the near future, we expect more malls to withdraw from the retail realty business as a result of which, the business of average and good performing malls will improve. This is a much-needed course correction, which will continue to happen for some time. According to our estimates, around 14 malls are expected to withdraw from retail operations, having a combined mall space of 3.5-4.5 million sq ft.

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