The Hindu Business Line : Spotlight on commerce

In tier II cities such as Ahmedabad, property developers are betting on corporate houses providing a boost to infrastructure, business and hospitality.

Divya Trivedi

Investing in malls is no longer as lucrative as it was some time ago, say developers who are looking for alternative options. In tier II cities such as Ahmedabad, property developers are betting on corporate houses foraying into Gujarat to provide a boost to the infrastructure, business and hospitality segments.

Mr N.G. Patel, Chairman, NG Corporation, known for developing Gallops, the first designer mall in India, says that mall projects will be converted into other projects.

The developer is working on converting around 3.5 lakh sq.ft in one of the prime areas of Ahmedabad, S G Highway, into a corporate park. Malls are becoming an expensive proposition against the returns they provide, Mr Patel told Business Line.

“The trend of visiting malls is still there but middle-class people do not shop regularly here as it is too heavy on their pockets. I don’t think malls will work in the long run as the cost of maintaining them is too high,” he said. Gallops Mall faces stiff competition for footfalls from nearby Reliance’s Iscon Mall and Future Group’s Big Bazaar.

Mr Patel says that as availability of spacein tier I cities becomes scarce and more expensive, international companies are looking at tier II cities, which is good news for growing cities such as Ahmedabad.

Infrastructure focus

NG Corp is investing in a Special Economic Zone 26 km from Ahmedabad. The company has acquired 230 hectares of land for an engineering and ancillary services SEZ.

“The future is definitely in infrastructure projects as the government supports and provides various facilities for such projects. It is a safer bet than any mall project today,” he said. The company is also in the initial stages of planning an agro park with food processing facilities at Changodar, Ahmedabad.

Mr Patel said as more people come to work in the State, the benefits are two-pronged.

First, they need a place to stay. Second, half their total salary, will directly or indirectly get pumped into the local economy.

There are less than 25 star-category hotels in the State, most of them clustered in Ahmedabad and Baroda, according to Mr Pradip Sharma, Assistant Manager, Finance, Neesa Leisure Ltd.

Neesa Group, with hotels in Western India, credits around 60 to 70 per cent of its room occupancy to business travellers.

“Not just for us, but for all major hoteliers in Gujarat, including Pride and WelcomGroup, the bulk of the revenue comes from business travellers. The infrastructure development of the city is reflecting the need for more and more rooms, especially in cities,” said Mr Sanjay Gupta, Chairman, Neesa.

Demand-supply gap

According to a survey, there is a demand of 660 hotel rooms in 2008, which will increase to 1,368 rooms in 2012 in the Rs 3,000- and upward Average Room Rate band, said Mr Sharma. This denotes a gap of almost 708 rooms, which means there is still a huge scope for adding new hotel rooms.

Mr Gupta says that if 1,000 rooms are added over the next three years, the demand-supply gap will substantially diminish. “Even after that, business will be good, it should not stagnate,” he added.

Despite the current slowdown in the property market and businesses being cautious, the hospitality sector in Gujarat did not suffer much, he said. “The Average Room Rate did not go down. One reason can be that, compared to the bigger cities, the tariffs in Ahmedabad are affordable.”

The tourism industry of Gujarat is at a takeoff stage and the scope of real-estate investments in it is huge, he said.

Both Mr Gupta and Mr Patel agree that Diwali will actually show where the industry is headed as it is the prime season. Mr Patel says that the golden period of Gujarat realty is on till 2010, as still there is a lot of untapped scope in the market.

“The freight corridor, industrial corridor, all pass through the State and it has been notified as the second IT hub of the nation. As more business pours into the state, opportunities for us are vast,” he said.