Small towns beckon malls

An increasing number of mall developers are drawn to tier II and III towns. Almost a quarter of the malls expected to come up over the next two years are being located in smaller cities such as Indore and Coimbatore.

Industry experts say the trend, which is contradictory to the general notion that malls spring up in urban markets first and then percolate down to smaller towns, will continue in the near future. They point out that easy availability of land and low rentals are the main drivers for the growth of mall in small towns.

Nagarajan Narasimhan, head of research, CRIS INFAC says that while rentals in the Tier III cities may be about 40-50 per cent lower as compared to the metros, the overall sales too tend to be 30-40 per cent lower.

But this doesn't bother the developers too much. "Overall revenue would also depend on the per capita availability of malls space," says Yogesh Samat, chief executive officer, Inorbit Malls adding that revenue per square feet is not an indicative measure.

Shishir Baijal, managing director and chief executive officer, PFH Investment Advisory Co, says while the difference in revenue per sq ft could range from Rs 30-35 to Rs 50-60 in the metros, the investment that has gone for setting up the mall is relatively lower.

Also, there is the first mover advantage in these cases. "Even if it is a small town, the idea is to be the best they have. Besides, there is a gestation period of about two years so it makes sense to start planning them now," says Baijal.

Baijal says what is important is to feel the pulse of the market. "The same formats and sizes will not work uniformly across the country. Malls have to be build for the market," he says.

This means everything- from the size of the mall to the product mix on offer - is bound to change. Hypermarkets and local retailers would tend to figure more prominently than national or even international players for instance.

"City malls could range from 200,000sq.ft to 1 million sq.ft depending on the format but malls in smaller towns could vary from 150,000 - 300,000sq.ft," Baijal adds.

A recent report by CRIS INFAC says that demand for malls in the metros and mini metros is almost six times that of the smaller towns and have been penetrated to only 14 per cent of their potential so it is advisable to tap this demand first before moving to other areas.

Samat agrees with it fundamentally. "While it is a sound theory, something that would work in a perfect environment, we have to keep in mind that the retail market in India is full of imperfections, the biggest being the availability of land," says Samat.