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Post  Anand on Sat Aug 16, 2008 3:24 pm

Downtown Bangalore's plexi-glass and steel totems to the information revolution are among the legacy offerings from Prestige Estates Projects Pvt. Ltd, whose every building is crowned by the insignia of a falcon - their (lucky) mascot. The company's first project was Prestige Court on Kengal Hanumanthiah Road in the mid-1980s. Since then, Prestige Estates, which is the flagship of the US$2 billion Prestige group, has completed more than 120 residential, commercial, retail and leisure projects, accounting for over 30 million square feet.

"Our corporate philosophy has always entailed exceeding the expectations of our clients. Under-promise and over-deliver, that's the mantra that's helped us grow and keep growing," says Irfan Razack, chairman and managing director of Prestige Group.

"Destiny takes you to different places. We started out by trading in the real estate business and decided to plunge into construction ourselves when we discovered there was a dearth of quality constructions," recalls Razack.

In the new millennium, Prestige Group gave a fillip to global retail that was slowly moving into India, with The Forum, a project that many would acknowledge as a benchmark in the country's mall space. Razack aptly calls it "a focal point of social gathering."

The company's latest offering, UB City - The Collection, is a thin slice of Manhattan overlooking the verdant Cubbon Park. Future projects include a mall in Hyderabad, a residential development in Cochin, a technology park in Chennai, a residential complex in Mangalore, and villas in Goa.

Neeraj Duggal, vice president of retail development, Prestige Estates Projects, has been closely involved in the concept and trade mix planning, leasing strategy and development of The Collection, which is readying for an April 2008 launch. The Collection is unabashed about seeking to become the first 'luxury' destination in India. Neeraj is responsible for design, development and operations of all mall initiatives of the Prestige Group.

Q: How will you place the current stage of shopping centre development in India in the larger context of urban planning?

Neeraj Duggal (ND): Currently, shopping centres are mushrooming at a dizzying speed, which is exciting as well as alarming to all analysts in India and abroad. Developers in India, mall operators abroad, and funds are all falling over each other to grab market share. While there are many reasons for this growth, the pattern and the lack of control in planning on a larger context is a matter of concern. This is bound to lead to a clustering that will surely lead to high failure rate and infrastructural breakdown.

Q: More often than not, the larger infrastructure development is not commensurate with the pace/scale of real estate projects. How can this gap be tackled?

ND: Infrastructure is a big challenge; some conscientious developers do attempt to trade off their area for road widening. Many are working in sync with municipal authorities to help improve their vicinity, which contributes to some extent. But there is a long way to go yet. The authorities need to have an open mind to engage the developers in improving the infrastructure. Presently, the approach is myopic and lacks vision – often, it is a case of putting a cart before the horse.

Q: Which are the biggest regulatory hindrances that, as a long-timer in real estate development, you would want to be done away with completely/modified?

ND: Liberalising FDI in retail; single-window clearance; and decoupling from real estate in terms of floor space index (FSI) and plot coverage.

Q: Perhaps among the most glaring inconsistencies in shopping centre development in India is the demand-supply ratio. Please comment.

ND: With the average growth in retail moving at 7-8 per cent and in some cities as much as 25-30 per cent, there is a mismatch in supply-demand ratio. Hence, the mushrooming of the shopping centres. But the moment there is a slight shift in this ratio, it will lead to a correction and a fall-out. A planned growth based on more accurate projections keeping in perspective the master plan would prevent many a heartache at a latter stage.

Q: What must necessarily be the middle way between availability/scarcity of (effective) real estate and the spiralling cost of acquiring real estate?

ND: Government being the largest property owner, should proactively free/address the supply situation to contain the escalating real estate costs. This has also resulted in the move by developers and retailers towards tier II cities to avoid exorbitant land costs. Having said that, malls will continue to be built – only, it will become a more suburban- or community-driven focus.
Secondly, the cost of land is going to affect the project cost; therefore, it needs to be factored in arriving at the yield. The yield is a function of occupancy cost, which in turn is driven by sales. If the retailer is sure of his sales, the rent can be worked at to achieve the required yield.

Q: Why do you suppose the ‘industry’ status has eluded the retail real estate sector until now? What are the imperatives for demanding the status?
ND: The main reason for this is that the sector is seen as a part of real estate industry, without any clear differentiation. I will sum up the key imperatives as –

    1. Shorter gestation period with single-window clearance
    2. Access to funds
    3. Transparency

Q: What are your views on the state and quality of foreign direct investment in the sector in India?

ND: We firmly believe that it is the only way forward. It obviously will have to be done in stages. It will firmly establish India as a potential market and increase the confidence of the investors. It will allow the industry to grow in a more aggressive manner. Retail is the reflection of our economy. So, if the economy has to continue to grow, the consumption is bound to happen, and the quality of FDI will be determined by creating an environment of confidence.

Q: What is your view on global shopping centre developers (like Ivanhoe Cambridge) coming to India? What learnings can we imbibe from them?

ND: Many such global players are courting the Indian players. India is seen as a huge potential for their operations considering the quantum of growth. Their experience in design, leasing and mall management will certainly be useful, so we don't have to reinvent the wheel and scale up our operations in less time. However, the land acquisition, development and retail knowledge will still be a local initiative.

Q: What fundamentals of research and planning are missing from the blueprint of shopping centre development in India?

ND: The catchments analysis, the retail planning at the design stage, the trade mix, the experience mix, and the linking of the complete development process to yield, are some of the fundamentals we need to give a closer attention to.

Q: What types of shopping centre have the potential to do well in India?

ND: The hypermarket format of retailing seems to have an edge due to multiple products; the turnover per square metre is also higher compared to other formats. It should be noted that globally, there is a shift from format retailers to brand retailers.

Q: There is no clear positioning strategy adopted by most shopping centres. Please comment.

ND: This is a key to the success of the mall and is determined by the demographics of the catchments. A relevant trade mix based on the planned ratio between retail, entertainment and F&B would go a long way

Q: Which do you think represents a good model of leasing strategy, both in India and globally?

ND: A complete lease model where the developer/operator will have the control is the only way to go. The lease terms need to be brought down to ensure a fresh look to the mall and to have successful retailers occupying the mall.

Q: Which revenue model has Prestige found the optimal?

ND: We have tried the fixed rent and the variable rent in various ways, and these have worked well for us. Both will have to be offered based on the track record of the retailer and the confidence in the brand.
Q: Please share your understanding of common area maintenance (CAM). What do you think has been the general attitude towards CAM in India?
ND: Common area maintenance (CAM) charges are levied by landlords to pay for the actual costs of running a retail complex, including parking lot maintenance and electrical and water consumption. It can be a flat rate or CAM on actuals. In case of the former, there has to be scope of escalation in CAM every year. CAM is often looked upon with suspicion by tenants due to lack of transparency. In future, an all-inclusive rent may be the way forward.

Q: How can the tenant mix be made more innovative?

ND: The objective is to encourage consumption, for which innovative mix is essential. Planned categorisation ratio, which is relevant to the catchments’ demographic makeup, with possibilities of newness created by temporary promotion is an option. Comparative buying option for some categories and, at the same time, exclusivity for others should be created. A shorter lease or a performance-based renewal and escalation without cap are some of the means, if adopted, that will give a fresh look to the mall every three years.

Q: Are mixed-use developments the best way to go ahead with?

ND: They certainly help in maximising the FSI since retail does not always work above ground plus 3 levels. The ground retail can utilise the ground coverage and the others can utilise the height. It could also be a means to sell off a residence or an office block to raise money for the retail venture, which should be retained. It can create immediate catchments for the retail. It could also be a means to offset the high real estate value.

Q: How can technology and security issues be addressed?

ND: Technology is available in the West; it only needs to be paid for. But indiscriminate use may be avoided, since in our condition the human interface is still needed. Security is surely a situation that will continue to require special attention and will depend on various external conditions. Safety is also critical and should not be compromised. These are very local issues and need to be factored in as part of the design and operational cost.
Q: Manpower availability is another problematic area. How have you addressed this?
ND: It is a new industry, so obviously there are no trained people. A related industry like hospitality is a good hunting ground. Once the manpower is trained, a clear career growth path, if shown, would help retain the talent pool. This is possible since each organisation has definite growth plans.

Q: Should parking be made free, and instead, perhaps use the parking area as a medium for advertising/promotion activities?

ND: Parking is provided for the customer as a facility. This is also an incentive for the customers to come to a mall. Parking should be charged and that too nominally, to dissuade misuse of the facility. It may be used to generate revenue as a signage medium. It should never be a deterrent for a customer to come to the mall.


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