Changes in the market situation in the last couple of years offer cause for optimism. "The supply of potential anchor clients for malls seems to be increasing. Players like Shopper's Stop, Westside and Pantaloon are taking key slots in upcoming malls," says a study conducted by McKinsey and Confederation of Indian Industry (CII).

The number of such anchor shops is, however, not sufficient for all the up-coming malls. Some of the new malls are trying to attract restaurant chains to become the prime occupant of the mall.

Stating that most of the Indian mall operators are working on a trial and error basis and a successful model for Indian conditions is still in the process of evolving, the study says there is a danger that construction of new malls will outstrip the catchment demand and availability of quality tenants.

The study cites the example of Mumbai, which requires at least 5 per cent of its total retail spend to shift to these new properties to able to support two million square feet of mall space. Mumbai is to see over 10,00,000 square feet of mall development in the next couple of years. The up-coming malls include 400,000 square feet project Landmark Citi developed by S Kumars, 300,000 square feet of development by Ruias and 180,000 square feet of mall space by Hiranandani Group.

Quoting the real estate consultant Jones Lang LaSalle, the study says that there are mall developments in major Indian cities which include 200,000 square feet projects by the Ansals in East Delhi, Williamsons Magor Mall (250,000 square feet) and Saraf's Plaza (200,000 square feet) in Calcutta and 280,000 square feet Spencer Plaza in Chennai.

The success of organised supply of retail space through mall development depends on two factors: there should be a right mix of low rent-paying anchor tenants and high rent-paying speciality stores and to ensure that initial investment is not too high for the spending power of the catchment.

The study finds that a typical mall of 100,000 square feet requires an investment of Rs 20-30 crore excluding the land costs. The malls are likely to break-even in a period of five-six years. The study also points out that Indian mall operators prefer to sell the space, rather than take the risk of leasing it. Global mall operators, however, prefer to lease out over 60 per cent of the space. This allows them to benefit from the higher rental streams attracted by the higher footfalls and sales over a period.

Predicting that proliferation of organised retailing is on the cards, the study says that malls will become one of the major formats of retailing in the years to come. However, development of such projects depends largely on the property prices. In India, the land markets are extremely disorganised and distorted by regulations leading to a woeful shortage of quality retail space, says the study. "Despite slump in property prices, Mumbai and Delhi remain two of the world's most expensive places for property. Investing in a Delhi locality, which has a good catchment, costs anything between $145-240 per square feet per annum," it says adding that the low property price is the key stimulus for the retail boom in Chennai and Bangalore.

Malls in India can be successful if they manage to deliver a real customer-oriented retail experience at affordable prices, says the study.

The pricing factors will, however, largely depend on the property price.The real estate market is a victim of laws skewed towards tenants, restrictive zoning legislations, non-availability of government-owned land combined with fragmented ownership of private property and disorganised transactions due to a lack of clear titles and transparency. Unless the issues distorting the real estate market are resolved, proper growth of organised retailing will be difficult.

(Tomorrow's focus: E-tailing)