The ever-increasing demand for office space and soaring lease rentals in Mumbai and delays and rising costs for retail projects have leading property developers rethinking their mall projects.
Real estate developers like Indiabulls, DLF, Peninsula and even retail giant Future group are all considering converting space reserved for malls and hyper-markets to office space to meet heavy demand from financial institutions, investment banks and large companies.
Office space rentals have risen 30 per cent in the city central business district Nariman Point and 20 to 25 per cent in Lower Parel in the past year.
In contrast, rentals in Mumbai's prime city malls and high-street locations have gone up just 8 to 10 per cent, according to a recent report by property consultancy Jones Lang LaSalle Meghraj.
Indiabulls Real Estate (IBREL), which had plans to build 1.2 million sq feet of corporate space and 400,000 sq feet of high-end retail at Elphinstone Mills in Lower Parel is now thinking of converting the entire area into an office complex.
"There is a good demand for office space in south Mumbai and retail projects need a lot of infrastructure and ancillary support, that is why we are reconsidering the project," said an IBREL official.
The company is also building a office and retail complex, One Indiabulls Centre, at the adjacent Jupiter Mills, which has 1.5 million sq feet of office space and a 500,000 sq foot retail component. The company has leased nearly 1 million sq feet of office space, but is yet to lease the retail space.
"As of now, our retail plans at Jupiter are on track, but if good demand comes up for office space, we will reconsider the retail component," the official said.
India's largest listed developer DLF, which bought Mumbai Textile Mills land at Lower Parel for Rs 720 crore and announced a high-end retail-cum-entertainment centre in the area in mid-2005, is also planning to reserve a part of it for a corporate complex.
Even Kishore Biyani's Future Group, which bought Mumbai's landmark Crossroads Mall from Ashok Piramal group in March 2006 for Rs 251 crore, has changed plans to position Crossroads as a high-end luxury mall to a office-cum-mall complex. Sources said the group has already pre-leased the space in the building.
"We thought office space will fetch us 20 to 30 per cent more rental than pure mall space. Now, the building will have luxury retailers at ground floor and offices in subsequent floors," said a Future group official.
"All developers look for better value from an asset class. Due to the dearth of commercial space, we can get better valuation from office space than retail spaces," said Rajesh Jaggi, managing director of Peninsula Land, an Ashok Piramal group company.
Property consultants said developers spend more on retail space in terms of funds and time. Constructing a square foot of office space comes to around Rs 1,800. For the same retail space, the cost ranges from Rs 2,200 to Rs 2,400 due to the high cost of fixtures and fittings, escalators, superior flooring and lighting.
Says Bappaditya Basu, associate director of property consultancy JLLM, "Apart from the cost, you need 65 clearances to open a mall and it takes three or four years to complete. Nearly 600 malls were announced two years ago; if 100 malls become operational, that is decent enough," Basu added.
Mumbai's congested roads and lack of infrastructure are also hurdles to the growth of retail spaces. "Retail needs to be supported by adequate parking, leisure activities and connectivity since its success of it depends on the number of people visiting it, while office space can make do with less of the infrastructure," Basu said.