Retail Brands Adapt For Their Non-Metro Expansion

Mid and mass-segment brands best placed to tap into tier-II / tier-III potential

Pankaj RenjhenPankaj Renjhen, Managing Director – Retail Services, JLL India

As incomes rise, aspirations change and brand awareness increases among the non-metro consumers, an increasing number of international and Indian brands have started foraying into these largely untapped markets.

As the markets in metros mature, brands have started expanding their footprint in non-metros to capitalise on the growing demand. However, as supply of quality malls is less, many brands have to either open their stores in the already-established high-streets, generally located in the heart of a city, or explore built-to-suit (BTS) options.

The lack of entertainment options and organised retail, when compared to the metros, has paved a way for high-street retail culture and rising demand for such offerings. Despite a lack of supply and options in terms of organised retail, non-metros like Ahmedabad, Jaipur, Ludhiana, Indore, Chandigarh, Bhopal, Surat, Amritsar, Nagpur and Lucknow have witnessed considerable growth in retail development in the last four-five years.

With these cities having favourable demographics and a high propensity to consume, many national and international brands are creating their presence here. Consumers in some of the Tier-II cities around New Delhi travel to the malls here to shop for luxury and high-end brands.

Interestingly, it is the mid and mass-segment brands that are expanding the most in non-metros owing to the market dynamics and demand potential. Many are trying to gain first-mover advantage.

Customisation Is Key

Inclination towards cultural events and traditions continues to remain strong in Tier-II and Tier-III cities. Therefore, customising to the local culture becomes very important in each city as standardised store formats do not necessarily work. The formats, sizes and pricing – all need to change as per the spending power and target audience in each city.

Many of the food and beverage (F&B) players customise their menus to include local flavours and suit the taste palate. Department stores and hypermarkets incorporate F&B brands or cafes in their stores to attract more footfalls and extend the time spent by consumers in the store. Likewise, fashion brands also customise their merchandise according to demand and demographic parameters.

Store Sizes

Sales per square feet and productivity of space utilised have become an important parameter for success of a brand. A majority of the brands are focussing on right-sizing their stores according to the location, format and demand from consumers. Due to the onslaught of discounts from e-commerce players, smaller formats are also coming up apart from the standard formats.

A comparison between the average store sizes in malls located within metros vis-à-vis non-metros reveals that there is hardly any difference between them. Also, no direct correlation between the store sizes and their locations exists, i.e. the average store size in one of Delhi’s leading mall could be the same size as the size of a store in Bhopal, Ahmedabad or Baroda.

retail 1

The flagship stores, which showcase a brand’s variety of merchandise, are generally bigger in size, and are generally found in prominent locations across these cities. So while store sizes may be comparable in the metros and non-metros, brands generally have a larger footprint in the metros by having several smaller stores in different malls and high-street locations vis-à-vis a single store in a non-metro.

It could also be due to brands wanting the non-metro consumers to have the same experience as their metro counterparts. The same holds true if we compare the store sizes at high-street retail locations in metros and non-metros.

retail 2

Gazing Into The Future

A look at the average rentals across some of the established high-streets in metros like Delhi and Mumbai shows how non-metros like Chandigarh have a similar range of rentals as the former while Goa has higher rentals than Bangalore.

retail 3As bigger cities would reach saturation point soon, the next phase of retail real estate growth is expected to come from non-metros. The rentals in non-metros may increase in quality mall supply and prominent high-street locations depending on the economic conditions and consumer demand in the long run. The upward movement, though, will be in line with growth in consumption.

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Unlocking India’s Rental Market With Draft Model Tenancy Act, 2015

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

A change is in the air after almost 70 years as far as rental market is concerned. With the Draft Model Tenancy Act 2015, more of India’s budget-strong families can expect to have a roof over their heads at a cost that is affordable, and to live with dignity.

The NDA government has finally started moving on the Draft Model Tenancy Act 2015. The previous UPA government initiated it almost four years back, but did not complete the process. Housing is a major problem in India, and this Act looks forward to making an impact on it in the most constructive manner.

  • Will this Act will change the market dynamics and if so, how?

The Draft Model Tenancy Act, 2015 is an improvement on its obsolete predecessor, the Rent Control Act, 1948. The latest draft will make things much easier for the landlords who were short-changed by the previous law. The Rent Control Act was applicable only to tenancy of more than 12 months, had put a cap on rent and made it extremely difficult to evict a tenant who did not pay the revised rents despite living in the same premises for years. The new draft, on the other hand, will ensure that landlords are able to charge market rates for their residential or commercial properties, get the rents revised periodically and also get their premises vacated easily without getting into the long-drawn legal proceedings.

  • What is Draft Model Tenancy Act, 2015 responding to?

There was a need to unlock the greater potential of the housing sector. Property owhandshakeners were sceptical about giving their house on rent, and most of them avoided it out of the fear that tenant will never vacate their property. With these changes, house owners can relax and a huge number of properties lying vacant can be used to not only generate additional income for them, but also solve the housing problem of millions.

  • Who will benefit from the new Act?

Apart from the benefits to landlords, the new draft Act also works well for tenants. As per the draft, rent ceiling will be fixed in consultation with the state government to avoid arbitrary hikes. Besides this, landlords won’t be able to evict tenant as per their whims and fancies, as there will be a written agreement. Also, the security deposit charged from the tenant will be capped at three times the monthly rent, which is currently charged more or less on an ad hoc basis. Another plus point for tenants is that they can claim a reduction in rent if the quality of services available to them deteriorates in any way. In short, it’s a win-win situation for both house owners and tenants if they play by the rule book.

  • Will the new Act succeed where the previous one failed?

Yes, it will. The new Act safeguards the interests of both the parties in a special court of law, so there is no reason to believe that it will fail to have an impact. Landlords can expect rent that their property deserve and tenants will be saved from unexpected rental raise and surprise evictions. The only thing to be considered here is the implementation of the Act in its right spirit.

The purpose of this Act is to help unlock the pent-up potential lying in the housing segment. While the UPA government’s avowed intention of constructing houses for millions will take a lot of time and regulatory approvals, unlocking the doors of houses already built but not utilized is a faster and comparatively easier process of addressing the goal of Housing For All.

  • Will there be an immediate impact?

The expected change – meaning the increased willingness for property owners to rent out their properties – might not happen overnight. House owners will first like to test the waters. However, with a long-term view, house owners have everything to gain by letting out their property without having to worry about seeing them vacated. A lot will depend on the execution of the rules mentioned in Act to help landlord raise rents and get trouble-making tenants evicted.

State-Level Applicability Of The Act

Since land is a subject of state, this Act is not binding on the states and therefore is called a draft. It is left on the states to decide whether to accept it or not. Given the vote-bank scenario, most state governments might not adopt this draft, but in the long run they would have to accept it since it is beneficial for tenants in a big way. Presently, the rent laws in most states have become archaic and are not serving the purpose of the current day and age. Additionally, lots of tenants have to undergo the harrowing experience of either giving in to arbitrary rent hikes or face eviction. This Act can help bring transparency as well as ease of doing business for both the parties involved.

A change is in the air after almost 70 years as far as rental market is concerned. With the Draft Model Tenancy Act 2015, more of India’s budget-strong families can expect to have a roof over their heads at a cost that is affordable, and to live with dignity. The sooner the respective state governments adopt the new Rental Act, the sooner they will be able to reap the benefits.

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Metro Rail – An Unmatched Real Estate Catalyst

A ShankarA. Shankar, National Director & Head – Urban Solutions (Strategic Consulting) JLL India

While Metro rail implementation has a huge impact on real estate prices along its corridor and the influence zone, in the larger context it improves the standard of living of a large segment of urban population, and is also a catalyst for sustainable development across large urban areas.

These cities show a uniformly positive change after the implementation of metros along their metro corridors. The deployment of a Metro directly impacts real estate through increase in land value, land use change and densification along the Metro corridor. International case studies prove that mass transit systems such as Metros and monorails contribute significantly to solving traffic problems. Such projects also result in increased urban real estate values, since consumers are willing to pay more for the convenience.In India, it is indubitably Metro time. Year 2015 saw the unveiling of metro rails in Chennai and Jaipur, along with the expansion of Metro lines in Delhi and Bangalore. Currently, there are 7 operational metro systems in India. Kolkata was the first city to be blessed with a metro rail in 1984, followed by Delhi in 1995. The success stories of Kolkata and Delhi paved the way for metro in others cities such as Bangalore (2011), Gurgaon (2013), Mumbai (2014) and Jaipur (2015).

Real Estate Impact Of Metros

The impact of a Metro on real estate along its corridor is direct and powerful. Of course, retail or commercial areas benefit due to improved accessibility, but residential areas receive a dual demand driver – the Metro generates jobs which result in increased demand for homes, and the reduced commuting costs and convenience draw buyers to areas close to the Metro.

  • In areas closest the stations, the visible impact is higher on commercial property values than on residential values, and the effect diminishes as the distance from the station increases
  • Land prices are higher if a land parcel is located within walking distance, but not directly next to the station. The increase in the land values is reflected in the area served, especially around the stations
  • There is a considerable increase in demand of retail and office spaces around existing metro stations.
  • Most commercial properties near Metros result from the conversion of standalone residential units to apartments, mixed use properties to commercial use and new development on vacant land.

mumbai metroLand values are inversely related to the distance of land parcels from the metro station. Ordinarily, land values decrease along with the distance from Metro stations. Technically, a Metro exerts an influence buffer of up to 1 km radius, with the maximum influence being within 500 meters. Typically in a city, the market value of properties will increase by more than 50% over the prevalent values after the launch of metro rail, depending upon the location, land use, and the micro-market’s overall potential.

The population density of nearby residential areas will increase after the launch of a Metro because of proximity preference, along with the increases demand for retail and office spaces. There will simultaneously be a steep increase of new developments in the abutting vacant land or open spaces, as the developers will seek to capitalize on the profit implications of higher developments that can result from additional FSI, if this is applicable. A constant rise in the land prices in the proximate areas is usually seen during all project stages.

Regulatory Changes To Accommodate Metros

There will invariably be regulatory changes taking shape after a Metro is put in place. To address the needs of urbanisation in the Metro areas, the government usually addresses the specific needs of housing development by granting extra FSI (Floor Space Index) along the corridor. This increased FSI will reflect in increased prices for land along the Metro corridor, and automatically lead to increased population density near the Metro station.

Needless to say, this imposes stress on the existing infrastructure available in the region, which the government must tackle along with the Metro development. In order to control development along the metro corridor, land usage needs to be revised – failing which unorganised commercial development will crop up on the heels of the higher rentals assured by the increased connectivity. Given the influence zone of 800-1000 meters from the Metro stations, the land use for this zone must be properly mapped in order to maintain a balance. Residential to commercial land use conversion will invariably be most prominent, as commercial spaces will fetch higher rentals.

JLL Property Consultants have worked on various assignments with Metro authorities across the globe and in India to analyse the impact of Metros on the respective property markets, including benchmarking property values.

CASE STUDY: Chennai Metro

The now operational Chennai Metro network has been planned in a manner which integrates it with other forms of public transport, including buses, suburban trains and MRTS. The enhancement and easement of connectivity has had a huge impact on real estate prices along the Metro corridor. With the amplified connectivity of Chennai’s suburbs to the city centre, more and more property buyers are considering settling down in the suburbs, away from the busy city and yet enjoying rapid connectivity to their workplace in the Central Business District (CBD).

Real estate demand along the Chennai’s suburbs saw a significant increase, and this prompted developers to unleash a number of new launches in these areas. North Chennai, which hitherto had limited real estate prospects, is now seeing the green shoots of growth after the Metro connected it to other parts of the city. The Metro is now expected to find solutions for unsold real estate inventories, resale and unoccupied commercial and retail spaces.

It will also restore the lost prominence of micro markets such as Anna Salai, which was the city’s earlier entertainment and business hub. The existing developments and infrastructure at Anna Salai had not been able to cater to latter-day demand, but will now doubtlessly see a lot of commercial redevelopment as a result of the easy access provided by the Metro.

Since the Metro’s announcement in 2009, Chennai has witnessed steady real estate price increases, especially along the Metro corridor. Prices near the Metro station have already reached Rs. 7000–16000/sq.ft. and are expected to increase further about 15% now that the Metro is operational.  Residential rentals will rise as more of the population moves closer to the Metro to benefit from the faster and cheaper transport. If feeder services are strengthened, this impact will amplify out to a radius of 4-5 km from the Metro stations.

Likewise, home buyers are also attracted by the reduced commuting time to work, and this will lead to a significant rise in sales and increased capital values near the Metro stations. The return on investment is considerable, given that home buyers are willing to pay a premium for residential units situated close to public transit systems like the Metro.

Overall benefits of a Metro:

  • Saving on travel time
  • High service availability, reliability and quality
  • De-congestion
  • Higher productivity and savings across the system

While Metro rail implementation has a huge impact on real estate prices along its corridor and the influence zone, in the larger context it improves the standard of living of a large segment of urban population, and is also a catalyst for sustainable development across large urban areas.

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Bangalore To Add 12 Million Square Feet Of Office Space Through 2016

City Included In Top 20 Technology-Rich Cities in JLL’s global ‘City Momentum Index’

Anuj Puri pic Anuj Puri, Chairman and Country Head, JLL India

Bangalore has helped India debut on the ‘City Momentum Index’ (CMI) Top 20 list – an annual survey carried out by Jones Lang LaSalle globally. Reinforcing the city’s status of being one of India’s premier technology centres, Bangalore figures at No. 12 in the Top 20 technology-rich cities globally. The economic as well as real estate momentum has gained pace as tech-industry majors line up to enter the market, or expand, here.

bangalore chart

This year’s CMI includes new variables that reflect the importance of innovation to a city’s competitiveness and dynamism. Bangalore performs strongly on these measures, with its capacity for innovation leading to the largest number of international patent applications in India. An increase in the number of high-tech startups registered in the city over the past year has also helped boost Bangalore’s score, reflecting its strengths in innovation and depth of venture capital funding.

Infrastructure investments such as Bangalore metro and a bus rapid transport system on the outer ring road (ORR), together with a rise in foreign direct investment projects, are also contributing to strong economic growth, which is expected to reach 8% this year and make Bangalore among the fastest-growing major cities in the world.

Bangalore’s strong performance has also been boosted by some of world’s highest levels of prime office space construction, absorption and rental increases. Interestingly, Bangalore pipped other Asia Pacific cities in demand for office spaces. Robust demand for commercial space from the IT sector and associated IT-enabled services is helping boost absorption levels – highest in the Asia Pacific region.

Office rents are also growing strongly and Bangalore figures in the top 20 of JLL’s Q1 2015 ‘Global Office Index’. Construction is increasing to meet the demand generated by Bangalore’s rapidly expanding economy. An increase of around 5-10% in prime office rents will be seen in 2015.

Bangalore’s top scores in the CMI (rank out of 120 cities):

  • GDP Growth 2014 (6)
  • Population Growth (8)
  • Real Estate Market Transparency Improvement (8)
  • Office Net Absorption (as % stock) 2014 (11)
  • Projected Office Rental Growth 2015 (14)
  • FDI Count 2014 (14)

While outside the top 20, Delhi and Mumbai are beginning to see an increase in momentum as economic growth picks up and demand for prime office space strengthens.

Market Dynamics

Year after year, Bangalore has remained very close to the demand-supply equilibrium in commercial real estate. The net absorption between 1Q14 and 1Q15 was around 700,000 sq m. An equivalent of 8.4% of current office stock will be built over 2015 and 9.5% in 2016 – adding up to a cumulative total of about 18% over both years.

Considering a net leasable area of 65 million sq ft currently, this would translate into 5.5 million sq ft of office stock getting added this year and 6.2 million sq ft in 2016 – in an ideal scenario i.e. when delays do not occur in construction work. Though the office occupier profile is changing with more companies in the eCommerce and BFSI sectors leasing commercial spaces across the city, a majority of the leasing activity remains IT and ITeS-driven.

As far as popular office sub-markets are concerned, Whitefield is already saturated and Electronic City does not see much traction. The latter mostly has only back-end offices as the rents here are cheaper than most other sub-markets. Companies, especially in the BFSI and eCommerce sectors, prefer the eastern and northern stretches of ORR due to good connectivity and a lack of supply in other sub-markets.

In these two sub-markets alone, 5.8 million sq ft were absorbed in 2014 against a total absorption of 8.7 million sq ft in the entire city. Rents in these two sub-markets alone are expected to increase by 8-10% in the second-half of 2015 as against the average rent increase of 6% expected across the city in the corresponding period.

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The Low-Down On Luxury Homes In Chennai

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

When compared to other metropolitan cities in India, Chennai has traditionally been one the most stable and even predictable real estate markets. However, in the recent past, the luxury homes segment in the city has not performed very differently from markets like Delhi-NCR and Mumbai.

The Luxury Ethos

Luxury is all about feeling special and set a cut above the masses. This feeling must therefore be conveyed in luxury homes. In India today, luxury homes include palatial villas and sprawling penthouses outfitted in Italian marble, Spanish furniture and private swimming pools, in buildings and projects designed to reflect European architectural styles and with all the other accoutrements of a luxurious lifestyle – spas, gymnasiums, golf courses and all the rest.

At the same time, the locations themselves must reflect luxury, so we are basically talking about creating a rarefied world of opulence in the prime core areas of the city. This definition of luxury homes holds true for Chennai, which is a city steeped in traditional values yet constantly aspiring for a more cosmopolitan ethos.

Does Chennai Want Luxury?

The people of Chennai are conservative at heart, yet highly educated and able to evolve with the times. Luxury definitely has pertinence in a city where people work hard to climb the ladder of success. That said, one cannot trifle with Chennai’s conservative sensibilities.

Because the luxury real estate industry showed a lot of promise, the year 2013 saw a big rush of major real estate developers opening shop and buying massive land parcels to build ultra-premium projects in Chennai. However, negative macro-economic factors and unrealistic pricing conspired to throw a spanner in the works – many of these projects never saw the light of the day because they failed to incite interest at the pre-launch stage.

While the aspiration for luxury homes burns as brightly as ever in the city, Chennai’s HNIs drew a firm line at the over-enthusiastic pricing. Builders had no option but to become smarter and to realize that even within the context of luxury, the pricing has to be right for a city like Chennai. Today, homes previously priced between Rs. 7-8 crore have now been toned down Rs. 4-5 crore – and the market is moving again.

Affordable Luxury – Gaining Ground

Like every other metropolitan city, Chennai has prime areas that the most affluent choose to call home. The most prominent are Boat Club Road, which commands residential property prices in the region of Rs. 27,000/sq ft and Poes Garden, where luxury homes cost in the region of Rs. 33,000-35,000/sq ft. However, Chennai is also seeing the emergence of new luxury precinct – Nungambakkam, Adyar, Alwarpet, Kotturpuram, Egmore, Bishop Garden, and Perumbur.

In fact, these localities are witnessing the highest growth because they address the city’s new-found need for affordable luxury. Also, in their quest to address this burgeoning demand, Chennai’s builders are on a spree to acquire defunct factories and mills in the northern and southern parts of the city, with a view to raze them to make way for premium properties. This supply aims to catch the upward curve when the luxury homes market revives in earnest.

USPs For Luxury Homes In Chennai

  • Location: For ultra-luxury, the address matters. Central location, convenient access to the city’s nerve points, high snob value. An important criterion for resale value, too.
  • View: Breath-taking – not overlooking a slum, busy road or hospital (this isn’t Mumbai). Like location, critical consideration for resale value
  • Facilities: Top-of-the-line – clubhouse, gymnasium, spa, swimming pool, landscaped garden
  • Safety: No compromise – world-class electronic security throughout, with the best security agency at the console and gate.
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