When a Bangalore-based apparel retailer was looking out for space in a newly opened mall, he realised he was up against an international brand, which had upped the stakes with its ability to pay a higher rent. A stiff fight later, the retailer gave up. Finally, he settled for a high-street space in Indiranagar, an emerging retail destination in the city. But not before shelling out a premium.

“Whether it is a high-street or a mall, there is now a fight for limited space. And with landlords wielding the upper hand, the one with the heavier purse-string bags the space,” says the apparel retailer.

With the retail sector seeing aggressive expansion after the slowdown, retail rentals are on the upswing again. While retailers do not fear an artificial peak — like the one during the pre-downturn days — they believe rentals are not likely to soften any time soon.

For instance, in 2008 the high-street rental values in Bangalore were Rs 250-350 a sq. ft. The slowdown saw a 15-20 per cent dip in rentals; but now the rates have picked up by 10-15 per cent across the top 10 cities. In certain areas such as Brigade Road and Commercial Road in Bangalore, the rentals have even breached the 2007-08 figures. Rentals in malls are also seeing a 12-15 per cent increase.

Retailers attribute the northward movement to the overall buoyancy in the economy and the lopsided demand-supply issue. Those who had shelved expansion plans are now going all out to occupy space, which is limited. Lack of adequate mall space and delay in mall projects have also contributed to the climb in rentals in the high-streets.

Mr Kaustuv Roy, Executive Director – India, Cushman & Wakefield, says: “The rental values have mainly appreciated on account of persistent demand for space for locations with relatively lesser options. Meagre addition to mall space has also led to the spiralling of the rental values. As developers deferred delivery of their projects, the main streets witnessed substantial pressures in the wake of the revived demand and expansion plans of most retailers.”

The demand is also driven by the entry of hyper-markets and supermarkets, which need large retail spaces, according to Mr Naresh Dandapat, Regional Director-South, Knight Frank, a real-estate services firm.

The influx of newer international brands, which are willing to pay more, is also taking rents up, says Mr V. Govindraj, Vice-President and Head-Retail Services Group, Titan Industries, which is looking to open 250 stores in the country across its watch and jewellery formats.

Mr Ajay Ramachandran, Brand Director of Van Heusen, says: “With 30-40 international brands coming into India every year, there is a big fight for the same space in the same market. There are at least 100 more brands lined up for entry, across categories like watches, coffee bars and apparel.”

Van Heusen plans to add 20 stores in the top cities this year.

Real estate owners are certainly having the upper hand today and the rental values are unlikely to depreciate in critical retail markets, say retailers. “In two to three years, the rentals could breach the 2007-08 levels,” says Mr Ramachandran. But the boom will be gradual, not artificial, adds Mr Govindraj.

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