Economic Revival Signals Resurgence for Pune Retail Real Estate

Economic Revival Signals Resurgence for Pune Retail Real Estate

Mayank Sharan, Associate Director – Retail Services, JLL India

Currently, various positive macro-economic factors reflect a definite revival in the Indian economy. The Gross Domestic Product (GDP) has leaped forward by 5.7% in the first quarter 2014-15, which is a significant rise over the 4.6% recorded during the previous quarter. In fact, this means that India is now experiencing its fastest quarterly growth in two years.

The initiatives by Prime Minister Narendra Modi in curbing inflation and reviving growth have succeeded in inducing positive growth across all sectors. The RBI had directed for an 8% CPI (Consumer Price Index) by January 2015, and the CPI had in fact dropped from 8.3% to 7.8% in August. While the RBI has continued to be watchful over inflation and has not made any changes in the interest rates so far, there is every indication that a drop in interest rates is on the charts in the near future.

With the economy once again shifting into high gear, all eyes are once more turned to India’s most promising retail markets. Pune is again in sharp focus by retailers because of its continued favourable demographics and generous availability of investment-grade retail space. As we take stock of the city’s retail potential towards the close of 2014, we are seeing a very convincing return of demand for retail spaces in most areas.

Pune saw considerable transaction in terms of mall space absorption during the last quarter. Many fashion brands and quick service restaurants (QSRs) were major contributors, and new brands such as Forever 21, Burger King, Pizza Express and Joyalukkas signalled their entry as well.

Due to the delay in the supply of the scheduled malls, inventory figures remained stable during the third quarter of 2014. Lack of new supply coupled with moderate transaction activity resulted in a visible decline in the city’s mall vacancies. However, despite the churn at preferred retail locations such as Camp and Hadapsar, the total quarterly mall leasing activity for the city saw a decline from the previous quarter.

Rentals In Key Retail Markets:

Key Precincts Average Rentals (Rs/sft/ month) Average Capital Value(Rs./sft/month)
MG Road 100-160 15,000-21,000
Bund Garden Road 90-130 13,000-17,000
FC Road 100-150 15,000-20,000
JM Road 100-150 15,000-20,000
DP Road 90-130 12,000-16,000
SB Road 80-140 13,000-16,000

New mall supply is scheduled to tap the markets in the North and West regions of Pune, which are by far the most promising quadrants for retail developments because they are largely untapped markets. Many large brands are looking to enter these markets, which are witnessing a lot of supply augmentation. The new mall supply coming up in these areas includes City One Mall in Pimpri-Chinchwad Municicpal Corporation (PCMC), Westend Mall in Aundh, My Mall on Senapati Bapat Road and Xion Mall in Hinjewadi. With the infusion of this new supply of retail spaces in all the right pockets, transaction activity will pick up significantly by the next quarter.

Rentals across the majority of Pune’s high street locations remained stable throughout 2014, largely due to the demand-supply equilibrium and the already high existing rental values. However, it was interesting to note that the lack of supply on Jungli Maharaj Road (JM Road), one of Pune’s most active high street retail locations, resulted in a marked spill-over of demand from retailers into neighbouring Fergusson College Road (FC Road). This led to a 4% increase in rental values in this location. Meanwhile, Aundh saw an upsurge of 5.6% in quarterly rentals due the rapidly growing interest for lifestyle brands in this micro-market.

When viewed in light of the death-grip between decreased consumer spending and deferred entry/expansion plans of retailers that the Indian retail industry was caught in so far, Pune’s resurgence as a Retail Mecca is extremely encouraging. Even as the signals for a full-fledged revival of India’s retail sector slowly turn green, it is cities like Pune that are poised to pull ahead of other cities.

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