2007

World Winning Cities Series Emerging City Winners Profiles

2

The Geography of Opportunity The “India 50”EXECUTIVE SUMMARY

India’s Retail AwakeningIndia’s retail sector is evolving at breakneck speed, fuelled by a strong economy, favourable demographics, rising wealth levels, and

the rapidly changing lifestyles and consumer aspirations of an ever growing middle class. Rarely a week goes by without major

announcements by retailers and property developers committing to aggressive programmes of retail expansion and shopping mall

development; or announcements about the arrival of new market entrants or the forging of new joint ventures with foreign retailers,

all eager to participate in an increasingly dynamic sector. India’s cities are witnessing a paradigm shift from traditional forms of

retailing into a modern organised sector; a transformation that will no doubt accelerate over the coming decade. The booming retail

sector is offering significant new property opportunities, but also many challenges for a new market that is going through structural

change at an unprecedented rate.

The demographic and economic statistics that underpin the growth of India’s retail sector are truly impressive, but in order to get

a realistic perspective on property opportunities, we need to comprehend how Indian consumer behaviour is changing; and to

understand how new retail geographies and retail formats are likely to evolve in a country characterised by enormous cultural and

regional diversity. So to help uncover the potential of the Indian retail property market, Jones Lang LaSalle Meghraj has embarked on

a programme of in-depth research to better understand the current and future landscape of retail property in India.

A New Geography of OpportunitytThis report is the first in a series on India Retail Futures. It reviews in brief the drivers of India’s booming retail market, and how

both retailers and the property sector are responding to the massive changes in the Indian retail environment. The report’s primary

focus, however, is to explain and predict the emerging geography of Indian retail activity and property opportunities. Most organised

retailing and retail property activity is still overwhelmingly concentrated in India’s two largest metros – Delhi/NCR (National

Capital Region) and Mumbai. Whilst the report concludes that there are considerable property opportunities in these two vast

cities, increasing competition combined with the growing opportunities in India’s regional markets is encouraging both retailers and

property developers to move into new and potentially more rewarding markets further a field. Organised retailing in India’s other

main cities, such as Bangalore, Kolkata, Hyderabad, Pune and Chennai is growing rapidly, but such is the pace of change, that many

smaller third tier cities are now firmly on the radar screen of the retail sector and mall developers.

With around 50 cities of over one million population, many of which are still largely untapped, there are clearly substantial

opportunities for the retail property sector. Domestic retailers and shopping mall developers are moving aggressively into India’s

smaller cities in order to gain first mover advantage, to capture growing consumer markets and to respond to the strong demand for

branded goods. There is clearly a significant requirement from both the retail sector and the property industry to know where India’s

next growth opportunities are likely to be concentrated.

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INDIAN OCEAN

JAMMU AND KASHMIR

HIMACHALPRADESH

UTTRAKHANDPUNJAB

HARYANA

RAJASTHAN UTTAR PRADESH

MADHYA PRADESHGUJARAT

MAHARASHTRA

Arabian Sea

CHHATTISGARHORISSA

JHARKHAND

BIHARMEGHALAYA

MANIPUR

NAGALAND

MIZORAMTRIPURA

Bay of Bengal

ASSAM

SIKKIM

ARUNACHA PRADESH

WEST BENGAL

ANDHRAPRADESH

KARNATAKA

TAMIL NADU

KERALA

GOA

Pune

Bengaluru Chennai

Kochi

Hyderabad Vizag

Mangalore

Mysore

Coimbatore

Vijayawada

Madurai

Mumbai

KolkataVadodara

Surat

NashikNagpur

Jamshedpur

Bhubaneshwar

Goa

Dhanbad AsansolBhopal

Jabalpur

Solapur

Kolhapur

Ahmedabad

Delhi

LudhianaChandigarh

Jaipur Lucknow

Amritsar

Agra

Kanpur

Indore

Allahabad

Meerut

PatnaVaranasi

GuwahatiJodhpur

Aurangabad

Srinagar

Panipat

�

India’s Emerging Retail HierarchyMaturing NCR/Delhi Mumbai

Transitional Bangalore Kolkata Hyderabad Chennai

Pune Ahmedabad

High Growth Chandigarh Ludhiana Jaipur Lucknow

Kochi Vadodara Surat

Emerging Indore Amritsar Jalandhar Mangalore

Nashik Bhubaneshwar Agra Vizag

Coimbatore Kanpur Nagpur Goa

Allahabad Mysore Jamshedpur Thiruvananthapuram

Nascent Jodhpur Patna Varanasi Meerut

Rajkot Aurangabad Bhopal Sonipat

Vijayawada Madurai Ranchi Guwahati

Jabalpur Asansol Dhanbad Panipat

Kolhapur Srinagar Solapur

The India 50

India’s Emerging Retail HierarchyMaturing NCR/Delhi Mumbai

Transitional Bangalore Kolkata Hyderabad Chennai

Pune Ahmedabad

High Growth Chandigarh Ludhiana Jaipur Lucknow

Kochi Vadodara Surat

Emerging Indore Amritsar Jalandhar Mangalore

Nashik Bhubaneshwar Agra Vizag

Coimbatore Kanpur Nagpur Goa

Allahabad Mysore Jamshedpur Thiruvananthapuram

Nascent Jodhpur Patna Varanasi Meerut

Rajkot Aurangabad Bhopal Sonipat

Vijayawada Madurai Ranchi Guwahati

Jabalpur Asansol Dhanbad Panipat

Kolhapur Srinagar Solapur

The “India 50” The Watch List for the DecadeMaking sense of the numerous opportunities across India represents a significant challenge for the property sector. Jones Lang LaSalle Meghraj has undertaken detailed analyses of the socio-economic profiles of 50 Indian cities� . We have combined this profiling, with primary and secondary research into the existing and future plans of major retailers and retail developers in order to identify the likely future retail hierarchy and the nature of property opportunities.

To create a view of the where, how and when each of the “India 50” will emerge as interesting locations for property; we have consolidated all the intelligence, information and views we have on each market in order to create a new retail city classification. Our analysis has identified five types of cities; each group is at a different stage in its market evolution and offers a different set of opportunities for retailers and the property sector. They are summarised below:

Maturing CitiesDelhi/NCR and Mumbai are “head and shoulders” above the other Indian cities in terms of number of shopping malls and organised retailers. Since 2003 their shopping mall stocks have increased markedly, and both cities have significant pipelines. Competition within the NCR and Mumbai will intensify as supply grows and there is risk of saturation in some market segments by 2008. Nonetheless, there are notable market gaps and both metros are sufficiently large and diverse to accommodate a wide variety of new formats, including large one-stop malls, speciality malls catering for luxury brands, city hypermarkets, smaller neighbourhood malls and “big box” retailing. The NCR and Mumbai will unquestionably continue to dominate the Indian retail scene, and despite strong growth in secondary and tertiary cities, we predict that these two metros will still account for 40% of India’s organised retail sector by 2008.

Transitional CitiesTransitional Cities are now firmly making their mark on the retail sector. Whilst organised retailing is a more recent phenomenon than in the NCR and Mumbai, they are catching up as both retailers and developers tap into their large middle classes. Bangalore, Kolkata, Hyderabad, Pune and Ahmedabad all have significant mall development in the pipeline, while activity is also expected to accelerate in Chennai. By 2008 these six transitional cities are likely to account for one-third of India’s organised retail sector. Bangalore has the most aggressive shopping mall development plans, with a wide variety of retailers attracted to the city’s increasingly cosmopolitan population, and the city is a favoured market to test new retail concepts.

� Representing all metros over one million population, plus other major commercial hubs.

High Growth, Emerging and Nascent CitiesNew retailers (both national and international) are still largely focused on India’s main cities, but expanding domestic retailers and mall developers are now selectively focusing on smaller cities, and by 2008 more than one quarter of India’s organised retailing will be in tertiary cities. These cities offer favourable opportunities for retailers due to growing consumer markets, considerable latent demand for branded goods and lower property costs. They are also less saturated than India’s main cities, and are less likely to face future competition from international players.

High Growth Cities. A small group of cities have over the past year entered a high growth phase. They include cities with substantial consumer spending power (such as Ludhiana), India’s most important tourist city (Jaipur), rapidly growing IT hubs (such as Chandigarh and Kochi), as well as several other medium-sized cities (including Lucknow, Surat and Vadodara). These high growth cities, mainly located in northern India, are perceived by retailers as the “next retail destinations”. Chandigarh, Ludhiana, Jaipur, Lucknow and Kochi lead the pack, characterised by high levels of shopping mall development and significant retailer interest.

Emerging Cities. On the basis of the future plans of major hypermarkets and department store retailers, a group of �6 “emerging” cities are likely to be the next growth markets over a three year horizon. Factors such as growing incomes, rising aspirations, scarcity of branded stores and growing corporate activity are increasing the demand for organised retailing. In cities such as Nagpur, Indore, Nashik, Bhubaneshwar, Vizag, Coimbatore, Mangalore, Mysore and Thiruvananthapuram, IT/ITES companies are rapidly expanding their workforces, which in turn is stimulating retailer activity. These cities currently represent among the most interesting locations for property developers, as retailers scour these cities for opportunities, and demand far exceeds supply. This group also includes several major tourist destinations such as Amritsar, Agra and Goa, as well as a number of southern Indian cities which have so far been less impacted by organised retail than their northern Indian counterparts.

Nascent Cities – A further �9 smaller cities (most of which have populations of between �-�.5 million) are classified as “nascent”, largely reflecting low per capita incomes and limited corporate activity. Organised retailing is currently very limited, but they are on the “watch list” of pioneering retailers and mall developers that are seeking to benefit from first mover advantage. Progress towards the development of an active organised retail sector in these cities is likely to be slow, although market conditions can change rapidly should their local economies be boosted by new corporate arrivals.

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India’s Retail Hierarchy-Characteristics

No of Cities

Typical Metro Pop’n (Mills)

Shopping Mall Development

Since:

% of National Organised

Retailing (by 2008)

Typical no of shopping malls

(by 2008)

Format Opportunities

Maturing 2 20 1999 �0% 50-150

Large Mixed Use MallsSpeciality & Luxury BrandsBig BoxNeighbourhood Malls

††††

Transitional 6 5-16 200� �2% 20-�0

Large Mixed Use MallsSpeciality & Luxury BrandsBig BoxNeighbourhood Malls

††††

High Growth 7 2.5 2006 11% 5-10

Mixed Use MallsLarge Department StoresBranded StoresBig Box

††††

Emerging 16 1.5 2007-09 1�% 2-5Mixed Use MallsDepartment StoresBranded Stores

†††

Nascent 19 < 1.5 2010 �% 1-2

First Mover Advantage100k + Shopping MallsSupermarkets/Hypermarkets

†††

Source: Jones Lang LaSalle Meghraj Research

The Future: Promises and ProblemsThis report shows that the Indian retail market offers significant opportunities for domestic and international retailers and property developers/investors across a broad range of geographies and formats. Rapidly changing consumer behaviour, new market entrants and changing government policy will further transform the sector, and open up yet more opportunities. The organised retail sector is developing at breathtaking speed, and the insatiable demand for modern retail is far outpacing supply. The market has entered a very exciting phase of evolution, but undoubtedly there will be losers as well as winners…

In the rush to expand retail formats and build new malls, many retailers and developers have lacked strategic vision, and in a booming market they have often lost sight of the “end game”. There is also a huge amount of market hype, and a widening gap between developers’ claims and what is actually happening on the ground. The reality will be that many planned retail schemes will not get built, and most of those that do eventually become operational will fall well below international standards. As more choice becomes available for the Indian consumer, many malls and retail concepts will fail the test of time.

Yet this “shake-out” will provide even greater opportunities for an elite group of visionary developers, owners and retailers who have the scalability, the teams, the processes and the logistics required to flourish in this rapidly growing retail environment. They will go on to set new benchmarks, not only for India, but for the world. Subsequent reports in the Jones Lang LaSalle Meghraj series on India Retail Futures will assess the formulae for success in terms of retail formats and asset management. The Indian retail market is full of promise, but it is not for the faint hearted and success requires a deep understanding and knowledge of the Indian consumers and their likely retail requirements.

India Retail in BriefThe 21st Century Landscape: A Masterpiece of ModernisationRetailing is emerging as one of India’s most dynamic and fast paced sectors. The drivers of its upward growth trajectory hardly need rehearsing, but they nonetheless help to explain why the Indian retail market is seen by both domestic and international retailers, as well as the property industry, as one of the globe’s greatest untapped market:

Favourable Demographics – Two-thirds of India’s �.� billion population is below 35. The country’s median age is 24 years, comparing favourably with China where the median age is 33 years. India is home to 20% of the global population under 25 years. We are seeing a tidal wave of young adults entering India’s consumer society with rising aspirations, new lifestyle requirements and an insatiable demand for consumer brands.

Rapid Urbanisation – The country is urbanising at a rapid rate, with almost 50 cities over one million population. India’s “mega-cities” – Mumbai and Delhi – will be the world’s 2nd and 3rd largest cities by 20�5, providing massive concentrations of retailing potential.

India’s Economy is Booming - Economic growth, currently at circa 9% is supported by a rapidly expanding IT/ITES sector, a deepening corporate base, growing FDI, economic diversification and policy liberalisation. Most forecasters expect 7-9% annual growth over the next five years, fuelling strong growth in consumer demand.

Growing Middle Classes – Estimates of the size of India’s emerging middle classes vary enormously, but there is little doubt that the numbers are large. Currently 70 million + earn over $�8,000 a year, a number that is expected to double by 20��. We are also seeing the ascendancy of the “super rich”, with �.6 million households bringing home over $�00,000. The propensity of the middle classes to consume is rising, oiled by easier availability of credit, income growth of around �5% per annum, and a notable shift from a “saving” to “spending” mindset.

The Emergence of Organised Retailing – A widely quoted fact is that 97% of retailing is still concentrated in traditional

neighbourhood “mom and pop” stores. In few other countries around the world is organised retailing so small. But India’s cities are witnessing a paradigm shift from traditional forms of retailing into a modern organised sector requiring international standard retail formats, providing massive opportunities for the property market. This pace of change will accelerate over the coming decade.

India’s Vanguard ConsumersThe demographic and economic facts widely quoted are undoubtedly impressive, but in order to assess the true nature of property opportunities, we need to better understand the deep and widespread transformation that is occurring in Indian consumer behaviour due to changing lifestyles, rising aspirations and the emergence of a dynamic youth culture.

Working with Sociovision2, experts in social change, Jones Lang LaSalle Meghraj has looked at the changes in Indian society, their impacts on consumerism and how this is feeding through to shopping behaviour and property demand. The research has focused on the emerging youthful, urban and relatively affluent Vanguard Class that is the driving force behind consumer spending, new business activity, high-technology and workspace innovations. This group includes circa �20 million people and continues to expand. Half of them are under 25 years, and most have excellent education. Within the vanguard class, there are couple of leading edge segments that are exerting a major influence on shopping behaviour:

Resourceful Young Women – The growth in the female workforce has resulted in the emergence of “Resourceful Young Women”, a group that are at the forefront of new India mores. They are young, literate and resourceful; they place a heavy emphasis on their careers and they have a very self oriented motivation for spending. Resourceful Young Women have a significant influence on Indian retailing – and 46% of them see shopping as a source of pleasure (compared to 36% globally). For this influential group, mall shopping is about “experience and pleasure”, and not just about cost efficiencies.

Young Urban Managers are the vibrant backbone of the Indian economy. They are highly entrepreneurial, hard working, money focused and are keen networkers. Their shopping habits are driven by a quest for status and economic advancement. With their busy careers and limited leisure time, their shopping needs are highly influenced by accessibility and convenience. The demand for home delivery, particularly for convenience goods, is very strong amongst this group.

2 See www.sociovision.com

Among the vanguard class, our research identifies four different mindsets described below, which are of prime interest for the retail sector. Retailers and developers need create shopping experiences that appeal to these groups:

Golden Boys and Girls – are young, university educated and urbanised. Mumbai and New Delhi are their favoured cities. They are thirsty for new consumer goods and designer brands, especially IT products and services. They are the prime target for international retailers, but interestingly they still have one foot deeply implanted in traditional Indian family values. This group will increasingly favour “hybrid” retail concepts that offer the best of Western models, but also strongly reflect their Indian cultures.

Cosmopolitans – are less “show off ” than the Golden Boys and Girls. They incarnate the values of globe-trotting travel and professional mobility. They are early adopters of new technologies and buy into global brands. Bangalore is the natural home of the “Cosmopolitans” and because of its cosmopolitan demographics is frequently used as a test market for new retail concepts.

Reactives – are older managers, who are modern and keen to break away from rigid hierarchies and social boundaries. They seek new skills, knowledge and professional success. However, they are less at ease with change in Indian society. Kolkata is a city in which the “Reactives” find their place.

Peaceful India – for this group consumption is linked to aesthetics and refinement. They are modern in their openness to gender equality and quest for reconciliation. Chennai is an attractive place to live for the “Peaceful India”

Seven Drivers of ConsumptionOur research identifies seven drivers of consumption, which are important components of spending and retailing activity:

Thrill Pleasures – There is a strong desire in Indian society for emotionally rewarding experiences. Mall shopping in India is currently viewed as an “experience”, a leisure pursuit and a form of entertainment, which has encouraged huge footfalls in new shopping malls. However, the challenge for many mall retailers and owners is converting the Indian “window shopper” from browser to purchaser. Complexes that offer other entertainment opportunities, such as multiplexes, are favoured by consumers. Indians are avid cinema-goers, reflecting their thirst for evasion, romance and new forms of vicarious consumption.

Fusion Fever - Whilst the Indian middle classes are attracted to global brands, they are still committed to their traditions and culture. We are seeing a fusion of modernity and tradition, and the hybridization of Indian and “western” cultures, re-enforced by the strong “Indian Brand”. This hybridization will increasingly translate into new retail concepts.

Aesthetics - Indian society has a deep sense of aesthetics, and home aesthetics are especially top of the mind to India’s vanguard class. Home furnishings are central to the concept of

a good quality of life, and retailers catering for this segment will see strong growth.

Novelty – The thirst for novelty is a fundamental characteristic of the “New India”, which is not just confined to the young. The taste for novelty is also driven by the need for learning and advancement through education. The current novelty value of shopping malls is high, but over time this will wane as choice increases, and Indian shoppers will become much more discriminatory over their choice of venue.

Technology - A taste for technology is a defining characteristic of Indian socio-cultural profile. This translates into strong interest in internet retailing which is increasingly popular, particularly for electronics and advanced consumer durables. An interesting dynamic is emerging in India, whereby internet retailing is evolving in tandem with modern store-based retailing. This will raise the demand for concept stores, exhibition space and promotion zones within shopping malls.

Network Culture - Indian society has become increasingly network based, and there is a strong urge to communicate, interact and extend one’s mobility. Increasingly, malls are a focal point for interaction and social exchange.

Advertising – tops the global rank in terms of society’s attraction to advertising and “infotainment” as a source of influence and information. Indian advertising is known for its creativity and boldness.

India – Drivers of ConsumptionThrill Seeking

A desire for “thrill pleasures” and emotionally rewarding experiences†

Fusion Fever

Hybridization of Indian and “Western” cultures†

Aesthetics

Quest for aesthetics, especially home aesthetics†

Innovation

Taste for novelty driven by need for learning†

Technology

Taste for technology is a defining feature of the Indian socio-cultural profile†

Network Culture

New IT and communications interacting with a more flexible social fabric†

Status

Quest for status is a key driver of the current consumer boom†

Source: Sociovision

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Deep Diversity, Extreme ExpectationsIndia is a vast and complex society – its huge population is highly diverse in terms of language, customs, ethnicity, habitat and way of life. Even between India’s major cities there are notable differences in consumer behaviour. Mumbai, Delhi and Bangalore with their money-making ethic are home to many of India’s “Golden Boys and Girls”; whilst the older more sophisticated “Cosmopolitans” are attracted to these cities’ global orientation. Kolkata is a city in which the “Reactives” are prevalent– its balance and cultural richness is valued by this group. Chennai with its balance between modern and traditional is an attractive place to live for both the “Reactives” and the “Peaceful India” groups.

There are also notable differences in consumer habits, preferences and loyalties by region. For example a number of smaller northern Indian cities, such as Chandigarh and Ludhiana, have developed relatively sophisticated consumer markets and brand awareness, due to their high NRI (Non Resident Indians) populations. In contrast consumers across most of southern India continue to have relatively low exposure to organised retailing.

Such regional diversity places an additional layer of challenges for retailers and property developers that are seeking to create pan-Indian operations. No single retail format is appropriate for the whole of India, and formats need to be adapted for local requirements. Market knowledge of local tastes is absolutely essential.

From Fragmentation to Unification: All in a Decade?The rise of organised retailing – Traditional neighbourhood retailers have historically dominated the Indian retail environment. This is now changing rapidly, with organised retailing growing by around 30%3 per year. Sales growth of leading domestic retailers of 50-�00% per year suggests that the market is on target to beat market predictions that organised retailing will account for nearly �0% of total sales by 20�03.

Existing domestic retailers are consolidating and expanding – The main retail players, that have traditionally been regional-specific, are evolving into pan-India operations. The rise of large domestic players such as Pantaloon/Big Bazaar, Shoppers Stop Group, RPG and Trent/Westside are a key feature of today’s market. All have very ambitious programmes of expansion across the sub-continent, and are building up their management expertise to support this growth.

New domestic entrants will be the companies to watch – Existing retailers are being joined by numerous new market entrants who are seeking a slice of India’s lucrative retail business. Notably, several of India’s largest corporate houses, such as Reliance, Bharti and the Aditya Birla Group are moving 3 KSA Technopak, 2005

into retail in a big way. Reliance Retail have a very aggressive expansion programme and is reported to be planning to invest nearly $6 billion in 5,000 shops across India, with annual sales of $25 billion by 20�0. Also in late 2006, Bharti enterprises announced its tie-up with Wal-Mart to roll out branded stores across India. Both Reliance Retail and Bharti-Wal-Mart will be the companies to watch – they are set to dominate organised retail and could well become global operations. Their understanding of Indian consumers, their impressive track record in business and their deep pockets places them in a strong position vis-à-vis existing players.

RELIANCE – A Major Force in Retailing Reliance, one of India’s largest corporate houses,

headed by Mukesh Ambani, has an aggressive expansion programme and is reported to be

planning to invest nearly $6 billion in 5,000 shops across India. It is poised to become India’s

largest retailer, with aims of achieving annual sales of $25 billion by 2010.

Reliance Retail opened their first “Reliance Fresh” stores in Hyderabad in late

2006 attracting considerable global attention. They are now rolling out stores at a rapid pace

across India through both organic expansion and acquisitions of existing retailers. The company also expect to debut their speciality stores and

hypermarkets during 2007. Reliance is also focusing on supply chain management –

“the farm to fork” logistics chain – with the aim of strengthening its procurement and

supply chain networks.

Foreign retailers are slowly moving in – Foreign retailers are still restricted from fully participating in the retail boom. Partial FDI relaxations in 2006 (allowing 5�% investment in “single brands”) are now enabling premium brands (such as Chanel, LVMH, Gucci and Zegna) and mass brands (e.g. Starbucks) to enter the market. While there is considerable pressure to allow �00% FDI, the local lobby to retain restrictions is strong, and further deregulation is likely to be slow and piecemeal. This is providing a short term window of opportunity for domestic players to embed and expand their operations.

Nonetheless, several international retailers are already operational through different routes:

Franchises – e.g. M&S, Pizza Hut, McDonalds and Nike are already operational.

Wholesaling – Metro (Germany) and Shop Rite (South Africa) are already operational through the wholesale “cash and carry” route (where �00% FDI allowed).

100% FDI in manufacturing – e.g. LG Electronics and Levis are permitted to sell directly.

However, the attractions of India retailing are so strong, that despite restrictions, many international retailers are seeking market entry through JVs with local players, and are stepping up sourcing operations. Companies such as Tesco and IKEA are all targeting the market and exploring business opportunities. The eventual arrival of major international retailers will create a much more competitive environment for retailers, and through knowledge transfer will lead to greater efficiencies and the introduction of higher international standards.

The Property Response – Accepting a Steep Learning CurveShopping mall development - reality vs hype? Since the completion of India’s first mall in �999, India has seen the steady migration of retailing from traditional formats into retail malls. As recently as 2002 there was barely one million sq ft of space in only a handful of shopping malls. By the close of 2006, this had risen to around 90 malls totalling �9 million sq ft across seven cities4.

Based on domestic developers’ intentions, the stock could more than double to over 40 million sq ft by the end of 2007 and to up to 60 million sq ft by 2008. However, there is a widening gap between developers’ claims and what is actually happening on the ground, and we estimate that the end 2007 stock could be between �5-25% below “official” developer estimates. Even if all the space is completed on time, in per capita terms stock levels by 2008 will still be significantly below all main

4 Bangalore, Chennai, Delhi, Hyderabad, Mumbai, Kolkata and Pune.

property markets in Asia, Europe and North America. China, for example currently has over 300 million sq ft of completed shopping malls.

Indian Shopping Mall Development

7 cities: NCR, Mumbai, Bangalore, Kolkata, Hyderabad, Pune and ChennaiSource: Jones Lang LaSalle Meghraj Research

Emergence of a new breed of pan Indian developers – The retail development market has so far been highly fragmented, with each region dominated by a different set of local developers. Most local developers have lacked both expertise and strategic vision, which has consequently compromised on the quality of malls that are being built. However, the recent and planned activities of leading developers such as DLF, Emaar-MGF, Unitech, Prestige Group and Raheja points to

2000 2001 2002 200� 200� 2005 2006 2007 2008

60,000

70,000

50,000

�0,000

�0,000

20,000

10,000

0

‘000 sq ft

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the emergence of a select group pan-Indian developers with a strategic vision and ambitious national expansion plans; that are raising capital using various methods including domestic and foreign public listings and private equity; diversifying their formats and gaining the necessary management expertise. For example, DLF, which is planning listing in 2007 is aggressively targeting national growth, with the reported aim of developing up to �00 malls across 60 cities within the next 8-�0 years.

DLF – A Pioneering Developer DLF, India’s largest real estate developer

was among the first movers into shopping mall development, when it launched the 250,000 sq ft

City Centre Mall in Gurgaon in 2000. The company has a very strong presence in the NCR.

DLF is planning a listing in 2007 with aggressive plans to become a truly pan Indian player.

They already have portfolio in most of India’s main cities, but now are also targeting Tier

III cities of Punjab viz. Ludhiana, Jalandhar, Chandigarh and Amritsar, alongwith Jaipur and

Kochi. They have a reported aim of developing up to 100 malls across 60 cities

within the next 8-10 years.

DLF are broadening their formats to include speciality malls, big box retailing and integrated

malls within SEZs. They are also moving into “lease models” and “revenue share model”.

Poor quality shopping malls – In the competitive rush to build shopping malls, we assess that over 90% of the current and planned shopping mall stock falls below international standards, in terms of specification and design:

Most malls developed earlier in the decade were strata titled. Currently circa 80% of mall units are strata title versus only 20% leased. A recent survey by Jones Lang LaSalle Meghraj indicates that three-quarters of domestic branded retailers prefer to lease rather than purchase retail units. Developers are beginning to respond to this trend, with more mall developers are now holding on to their properties. Local family retailers still prefer to buy rather than lease.Construction standards are inherently poor, with developers’ further compromising standards due to rising construction costs.

†

†

Mall configurations are poor in terms of pedestrian access, corridor width, linkages between floors and the amount of space allocated for food courts, entertainment areas, promotion zones, etc. Service areas for delivery and movement of merchandise are often inadequate.Many malls have a severe lack of parking provision, which is compounded by poor linkages with the road infrastructure.No emphasis on tenant and trade mix

But the biggest challenge for most Indian malls is the poor quality of the surrounding infrastructure and lack of integration with neighbouring residential areas, which often leads to significant congestion. A combination of poor infrastructure (both transport and utilities), planning and zoning legislation makes it inherently difficult for developers to provide an attractive retail destination.

Despite their inferior quality, most shopping malls still command large footfalls. But, many will fail the test of time as more choice becomes available for the Indian consumer, who will become increasingly discerning over their choice of retail destination.

India: Lease PreferencesChoice of Lease Model

Inadequate asset management – Most malls are poorly managed at both an operational/tactical and strategic level. This translates into problems ranging from low maintenance and cleaning, and various health & safety risks, through to inappropriate tenant mixes. Most owners continue to struggle with translating high footfalls into higher revenue. But this is gradually starting to change with the introduction of outsourced professional mall management to manage tenant mix, facilities, promotion, etc.

The benchmark shopping malls – There are nonetheless a few trophy malls, such as the Prestige Forum (in Bangalore) and Inorbit (in Mumbai), which have been particularly successful, and are closer to the standards expected by international investors. They are large, well planned and constructed malls, actively managed and promoted, incorporating entertainment and adequate parking. Select City Walk (in South Delhi) which is expected to become operational during 2008, a large multi use scheme, will set a new benchmark for shopping mall development in India. A revenue share model is being adopted

†

†

†

Lease model 74%

Ownership model26%

Fixed rent model65%

Revenue-share model 35%

Source: Jones Lang LaSalle Meghraj Research

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whereby tenants pay a minimum guaranteed rent as well as a variable component based on total sales. We expect more mall operators to adopt this model to ensure the continued commitment of both owners and tenants to drive growth and improvement.

Diversification of formats – As the market grows and matures, we are witnessing a gradual diversification of formats. At the one end of the scale, the market is seeing growth in large one-stop malls, combining mixed use concepts – eating, multiplexes, entertainment and infotainment, as well as serviced apartments. At the other end of the scale, we expect to see the construction of more neighbourhood shopping malls, which incorporate more convenience stores and food supermarkets. There will also be more speciality malls, some catering for luxury brands. “Big Box” formats will appear over the next two years, introduced by the likes of Reliance and Wal-Mart.

Strong asset price growth is unsustainable – With retailer demand outstripping supply, double digit rental growth has been a feature of most major metros since 2004, and growth is continuing into 2008. Major retailers are further fuelling asset price growth in their rush to acquire space and to impede the competition, while some developers are deliberately delaying construction to increase market values. Conversely smaller retailers (with tight margins) are being squeezed and increasingly discouraged from occupying space due to prohibitively high asking rents. The speculative nature of rental growth suggests that, despite the continued strength of retailer demand, current rates of asset price growth are unsustainable. The market is not immune to an emerging market correction as more supply comes on-stream.

Retail Rental Values in Major Cities

Active investor interest - Though most funds do not have specific retail allocation targets, all of India’s major real estate funds are seeking retail investments at yields in the range of �0-��% (either as standalone retail developments or mixed use developments with a retail component). Several specialist retail real estate funds include the likes of Kshitij �, Horizon International and Prozone.

International investor interest is growing. Singaporean investors, such as CapitaLand and GIC, and several US and UK investors/developers are scouring the market. CapitaLand has invested INR 338 crore (USD 75 million) in the Horizon Fund for four projects, whilst Liberty Capital has taken a 25% stake INR 200 crore (USD 45 million) in Prozone.

Investor interest will undoubtedly remain strong, with investors keen to participate in a market with an upward growth trajectory. However, the investment market is in a nascent stage, and many investors (particularly internationally investors) will adopt a more cautious “wait and see approach”, awaiting further modernization of the retail infrastructure and the lifting of FDI barriers.

Specialist Retail Funds Kshitij Investment Advisory Co Ltd (KIAC) is the

real estate fund management company promoted by the Future Group (owners of Pantaloon and

Big Bazaar). KIAC plans to develop over 50 schemes totalling 16 million sq ft across India.

The company has introduced the Kshitij Venture Capital Fund (KVC) and the Horizon International

Fund. Kshitij 1 is committed to developing 1� retail projects across India’s main cities.

The fund closed at USD 80 million in 2005. The Horizon International Fund is aimed at

foreign investors coming into India under the 100% FDI norm. The fund is also reported to be setting up Kshitij 2, which will focus

on projects in Tier III cities.

Prozone Prozone Pvt Limited is a subsidiary company of Provogue, one of India’s largest

fashion brands. Prozone has been established to develop and manage one of India’s largest

shopping mall networks with over 50 retail malls with an estimated investment of USD 1 billion

planned over the next 5 years. The company is tying up with a number of developers – such

as a JV with Omaxe, a leading northern India developer, with which they plan to develop 10

shopping malls. Liberty International have taken a 25% stake in Prozone-Liberty will build six large

shopping malls in Tier III cities such as Surat, Rajkot, Aurangabad, Mysore and Indore.

350

400

300

250

200

150

100

50

0

INR per sq ft pm

Delhi Mumbai Bangalore Chennai Pune Hyderabad Kolkata

2003 2004 2005 2006 2007

Source: Jones Lang LaSalle Meghraj Research

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Traditional “High Streets” will adapt – While the property market is firmly focused on new shopping mall formats, traditional “high streets” will continue to be the mainstay of the Indian retail scene. The pull of traditional neighbourhood retailers, particularly for local brands will remain very strong; “High Street” retailers have the advantages of proximity, familiarity and high personal service. Culturally Indian consumers expect and receive first class personal service from local retailers, and are often better positioned to respond to the huge demand for home delivery. But competition will increase, particularly as some local retailers move into malls and it will become a credible alternative to shop for local retail in newer formats. Traditional retailers will fight back, and the “high streets” will be forced to adapt, which will provide new opportunities for the property market to cater for this important local component of the Indian retail scene. Moreover, many traditional retailers still occupy illegal premises, and the policy adopted by the Delhi government to close/demolish illegal stores is likely to be rolled out to other Indian cities, forcing traditional retailers into the organised sector.

Retail property market is expanding into new geographies – Many retailers and mall developers are looking beyond India’s major cities, and selectively focusing on smaller cities which offer huge potential. These cities offer favourable opportunities for retailers due to growing consumer markets, considerable latent demand for branded goods and lower property costs. They are also less saturated than India’s main metros, and are less likely to face future competition from international players.

In the following section we look at India’s emerging retail geography, and assess current property market conditions and future prospects in both the major cities and those smaller emerging cities that are starting to appear on the radar screen of the retail property market.

The New Retail Hierarchy and Property OpportunitiesAssessing City Retail PotentialTo create a view of the where, how and when each of India’s cities with a million + population will emerge as interesting locations for property development, we have consolidated all the intelligence, information and views we have on 50 Indian cities in order to create a new retail city classification. The classification is based on an analysis of three sets of indicators:

Retail Potential Indicator – based on a basket of indicators including metropolitan area population and total income; per

capita income, savings and expenditure; household profile and economic growth measures. These indicators enable a quantitative appraisal of each city’s demographic and economic fundamentals, and provide an indicator of their potential to develop as vibrant retail locations.

Retailer Demand Indicator – based on the operational and planned presence of a basket of major domestic retailers (such as Pantaloon, Westside and Shoppers Stop) as well as domestic and international niche (“vanilla”) retailers.

Retail Supply Indicator – based on the number of current and planned shopping malls.

City Retail Potential Model

Our analysis has identified a five-level classification of cities:

1. Maturing CitiesThe National Capital Region (Delhi) and Mumbai dominate India’s organised retailing sector. Malls have been a feature of these two metros since �999, but it is only since 2003 that volumes have increased markedly. These two vast metro regions currently account for around half of all of India’s organised retailing. By 2008, they will still contribute over 40% of national organised retail activity; although this proportion is expected to decline over the longer term as retailing opportunities grow elsewhere (see page 2�-23).

The NCR and Mumbai have by far the highest number of shopping malls in operation and planned. Most pan-Indian

CITIES HIERARCHY

NASCENT

MATURING

EMERGING

HIGH GROWTH

TRANSITIONAL

50 CITIES

Socio-Economic Fundamentals

Size: Total City IncomeWealth: Income, Savings, ExpenditureSocio-Economic Profile (% in SEC A/B)GDP Growth

††

†

†

Retailer DemandBasket of 20 Retailers

Existing StoresPlanned Stores

†

†

Retail Supply

Shopping mall stock

Shopping mall construction

RETAIL POTENTIAL SCORE RETAIL ACTIVITY SCORE

Source: Jones Lang LaSalle Meghraj ResearchW

inni

ng C

ities

: IN

DIA

RET

AIL

17

retailers have a multiple presence, they are the launch pads for most new retailer entrants and with by far the largest number of “super-rich”, and these cities are the hubs of luxury brands. They are firmly on the radar of screen of international retailers and property investors.

Competition within the NCR and Mumbai will intensify as supply grows and there is risk of saturation in some market segments by 2008. Strong asset price growth and difficulties in land procurement make for a challenging environment for both retailers and developers. Nonetheless, there are notable market gaps and both metros are sufficiently large to accommodate a wide variety of new formats.

Opportunities are likely to arise in:

Developing large one-stop malls that combine mixed use concepts, integrating retail, entertainment, eating and residential uses. Catering for the numerous luxury brand retailers that are now targeting India’s two main metros. Currently, luxury brands are only largely present in major five star hotels (such as The Oberoi and Imperial in Delhi and the Taj Mahal Palace in Mumbai), but there is strong demand from these retailers for showrooms in both large shopping malls and speciality malls. Responding to the requirement for “Big Box” formats; a format that is likely to emerge over the next couple of years.Developing more accessible neighbourhood malls and hypermarkets within the cities. Most current and planned schemes are remote from the main residential areas, and low car penetration makes shopping malls inaccessible to many consumers.Targeting the booming middle class residential suburbs, such as Greater NOIDA (NCR) and Navi Mumbai and Thane (Mumbai) where many of the IT/ITES companies are based; and focusing in particular on those suburbs that have yet to see significant mall development.

National Capital Region The National Capital Region has been and continues to be the leader in mall culture in India. Organised retailing in the NCR is twice the size of Mumbai, both in terms of shopping mall stock and retailer presence. Rising income levels, increasing demand for branded products and wider acceptance of mall culture (than elsewhere in India) has led to massive growth in the shopping mall stock. Retailers are also attracted by the consumer profile of the NCR, with over 40% of households in SEC groups A and B.

At present the total mall stock stands at 8.2 million sq ft, of which 2.6 million sq ft is within the city of Delhi. Most stock, however, is concentrated in the main suburban regions of Gurgaon (at 2.6 million sq ft), Ghaziabad (�.2 million sq ft) and NOIDA (�.� million sq ft).

Organized retailing first came to the city with the construction of Ansal Plaza in South Delhi in �999. However, it wasn’t until 200� that the NCR saw the first shopping mall development boom, focused on the suburban market of Gurgaon, due to its booming IT/ITES sector and the availability of larger plots

†

†

†

†

†

Source: Jones Lang LaSalle Meghraj Research

of cheap land. Gurgaon saw the development of several large format malls by developers such as DLF and MGF. NOIDA followed Gurgaon into the retail boom in 2003, and more recently Ghaziabad and Faridabad have both emerged as major retail sub-markets. The city of Delhi is also witnessing large scale mall development, which has been made possible by the release and auction of land by the Delhi Development Authority.

With a very large number of malls in the pipeline (the mall stock could potentially more than double to 22 million sq ft by 2008-09) the NCR will continue to lead India’s organized retail market. We expect the suburbs of Faridabad, Ghaziabad and Greater NOIDA to be the focus of future retail development. Manesar on National Highway 8 connecting the NCR to the city of Jaipur is also likely to witness high retail interest. HSIDC has approved large commercial projects, and several major MNCs have commenced operations. Two Special Economic Zones by DLF (NCR’s largest developer) and Reliance are also proposed. These new suburban areas have large tracts of low cost land, and will attract high developer interest for mixed use development.

Connaught Place, South Extension, Khan Market and Greater Kailash are Delhi’s prime “high street” locations. They are vibrant retail destinations with recognised brands; and they will continue to attract significant consumer activity. Lack of expansion space in prime “high streets” is likely to lead to further price rises. The Delhi government’s policy of demolishing/closing illegal stores will re-enforce the migration towards organised retailing.

National Capital Region Shopping Mall Development, 2000-2008

Mumbai Mumbai’s first mall was completed in �999 in the Central Business District (CBD). Since 2003 mall development has increased massively, expanding from the CBD to all parts of the island city and suburbs. Currently, Mumbai has a shopping mall stock of 4.0 million sq ft, a figure that could rise to around �5 million sq ft by 2008-09.

SBD Central (Worli, Prabhadevi and Mahalaxmi) and SBD North (Bandra, Andheri, Juhu and Santacruz) were the

6,0007,0008,0009,000

10,000

5,0004,0003,0002,0001,000

0

‘000 sq ft

Delhi

2000 2001 2002 2003 2004 2005 2006 2007 2008

Gurgaon NOIDA Ghaziabad Faridabad

Existing Stock Future Supply

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Shopping Mall Development, 2000-2008

Source: Jones Lang LaSalle Meghraj Research

2000 2001 2002 2003 2004 2005 2006 2007 2008

6,000

7,000

8,000

9,000

5,000

4,000

3,000

2,000

1,000

0

‘000 sq ft

CBD SBD-North SBD-CentralSuburbs-Navi Mumbai & Thane Suburbs-Others

Existing Stock Future Supply

12,00014,000

20,00022,000

18,00016,000

10,0008,0006,0004,0002,000

0

‘000 sq ft

NCR Mumbai Bangalore Kolkata Pune Chennai Hyderabad

2000 2001 2002 2003 2004 2005 2006 2007 2008

Delhi/NCR 41%

Mumbai 20%

Kolkata 10%

Pune 6%

Bangalore 8%

Hyderabad 4%

Chennai 3%

Ahmedabad 8%

45 milion sq ft

Source: Jones Lang LaSalle Meghraj Research

first micro-markets outside the CBD to see significant mall development in 2002-2003. Since then there has been steady growth in the number of malls and several new developments are slated for completion by 2008 in the western suburban regions.

Another hot retail market is likely to be in the Parel area (in SBD Central), where the sale of mill lands has created considerable opportunities for mixed use development.

Other western suburban regions such as Malad and Goregaon have seen the development of integrated townships such as Mindspace. To cater for these residential townships, Raheja built the In-Orbit mall, which has become one of India’s most successful malls.

The central suburban regions of Powai, Mulund, Navi Mumbai and Thane are emerging as Mumbai’s next hot retail markets, boosted by the growing activities of the IT/ITES sector and rapidly expanding residential areas. Both Navi Mumbai and Thane are set to witness huge mall development in the near future. We expect that the central suburbs of Powai, Mulund, Navi Mumbai and Thane will overtake the western suburbs in terms of mall space.

Mumbai’s “high streets” such as Bandra Linking Road, Colaba Causeway, Breach Candy and Lokhandwala will continue to attract the Mumbai-ites.

Mumbai, Shopping Mall Development 2000-2008

2. Transitional CitiesBangalore, Kolkata, Hyderabad, Pune, Chennai, Ahmedabad

India’s transitional retail cities of Bangalore, Kolkata, Hyderabad, Pune, Chennai and Ahmedabad are now firmly making their mark on the retail sector. Whilst organised retailing is a more recent phenomenon than in the NCR and Mumbai, they are catching up as both retailers and developers tap into their large middle classes. By 2008, these six transitional cities will account for one-third of India’s organised retailing. Retailers are attracted by their increasingly vibrant corporate sectors, high economic growth rates, above average incomes and large middle classes.

Property, construction and labour costs are also well below the NCR and Mumbai.

The majority of major domestic retailers and new market entrants, irrespective of their business models, are already expanding in these cities or have plans to open new stores. Testimony to the strength of Tier II cities, Reliance Retail chose to open its first concept store in Hyderabad. As with Tier I cities, the key opportunities are in large one-stop malls, speciality malls, neighbourhood malls and hypermarkets and “Big Box” retailing.

Kolkata, Pune and Hyderabad currently have the largest shopping mall floorspace of the transitional cities. But Bangalore has the most aggressive mall construction programme, with a wide variety of retailers attracted to the city’s increasingly cosmopolitan population. Chennai has so far lagged the other transitional cities in terms of mall development, but is expected to start to catch up by 2008.

India’s Shopping Mall Stock (est. by end 2007) Primary and Secondary Cities

Source: Jones Lang LaSalle Meghraj Research

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Indian Tertiary Cities – Retail Activity v Potential

GROWTH

EMERGING

NASCENT

JaipurLudhiana

Chandigarh

Lucknow

Kochi

Vadodara

Surat

IndoreAmritsar

Jalandhar

MangaloreNashikBhubaneshwarAgra

VizagCoimbatoreNagpur Kanpur GoaAllahabad

Thiruvananthapuram

MysoreJamshedpur

JodphurVaranasi Patna MeerutRajkot

Aurangabad Bhopal

KolhapurGuwahati

MaduraiRanchi

SonipatSrinagar

Solapur

Asansol

DhanbadPanipat

VijayawadaJabalpur

1.2

1.0

0.8

0.6

0.4

0,2

0

0.4 0.6 0.8 1.0 1.2 1.4

Retail Activity Score

Retail Potential Score

2000 2001 2002 2003 2004 2005 2006 2007 2008

6,000

5,000

4,000

3,000

2,000

1,000

0

‘000 sq ft

Prime SecondarySecondary Suburbs

Existing Stock Future Supply

Bangalore, Shopping Mall Development 2000-2008

Source: Jones Lang LaSalle Meghraj Research

�. High Growth CitiesChandigarh, Jaipur, Ludhiana, Lucknow, Kochi, Surat, Vadodara

A group of tertiary cities have over the past year entered a high growth phase. These high growth cities, mainly located in northern India, are perceived by retailers as the “next retail destinations”. They are on the radar for major national and international retailers, attracted by high incomes and strong brand awareness. Chandigarh, Ludhiana, Jaipur and Lucknow lead the pack, characterised by high levels of shopping mall development and significant retailer interest. Research on retailer preferences by Jones Lang LaSalle Meghraj identifies the Punjabi city of Ludhiana as the most favoured tertiary city. Incomes are well above the national average and consumers have a high exposure to international brands due to the strong influence of its NRI population.

Bangalore Bangalore stands out among the transitional retail hubs. Already very well established as one of India’s primary office hubs, boasting an IT/ITES sector of global significance, the city is starting to catch up in retail terms. Retailers are attracted by the city’s booming economy, with double digit economic growth and average per capita income higher than either Delhi or Mumbai; Bangalore also has a cosmopolitan population which is continually being enriched by new migrants from across India as well as overseas. The city is often used as a test market for new entrants and retail concepts due to its young and cosmopolitan demographics.

Currently, Bangalore has a shopping mall stock of only �.0 million sq ft (below most other main cities). The city has a severe shortage of organized retailing; existing malls have virtually �00% occupancy, and the best malls (such as Prestige Forum) are attracting very high footfalls. Developers are now responding to the shortages and the city has a very aggressive construction programme. The mall stock could potentially rise to over 6.7 million sq ft by 2008, with 2.5 million sq ft due for completion in 2007 alone. Much of the space under construction has already been pre-leased.

Given the lack of organized retail space, Bangalore has prominent CBD “high streets” such as CMH Road and Brigade Road, which will continue to attract retailers. Jaya Nagar 4th block and CMH Road are also seeing high levels of leasing activity.

Although mall construction activity is occurring across all quadrants of the city, over the longer term we expect particularly strong growth in organized retail on Bellary Road, near to the new international airport which is scheduled for completion by 2008. Suburban Business Districts such as Whitefield are also expected to see significant mall development.

Source: Jones Lang LaSalle Meghraj Research

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Most high growth cities are located in northern India where there is strong brand awareness. The exception is Kochi in southern India, a favoured destination for the IT/ITES sector. A sharp rise in mall development is expected in 2007/2008 in Kochi, with schemes by both the Kshitij Fund (a retail investment fund of the Future Group) and Lulu (a division of EMKE Group of Dubai) in the pipeline.

�. Emerging CitiesAmritsar, Indore, Jalandhar, Mangalore, Nashik, Bhubaneshwar, Agra, Vizag, Nagpur, Coimbatore, Kanpur, Goa, Allahabad, Mysore, Jamshedpur, Thiruvananthapuram

On the basis of the future plans of major hypermarkets and department stores, a group of �6 emerging cities are likely to be the next growth markets over a three year horizon. Factors such as growing incomes, rising aspirations, scarcity of branded stores and growing corporate activity are increasing the demand for organised retailing. In cities such as Nagpur, Indore, Nashik, Bhubaneshwar, Vizag, Coimbatore, Mangalore, Mysore and Thiruvananthapuram, IT/ITES companies are rapidly expanding their workforces, which in turn is stimulating retailer activity. These cities currently represent among the most interesting locations for property developers - retailers are combing these cities for opportunities, with demand exceeding supply. This group also includes several major tourist destinations such as Amritsar, Agra and Goa, as well as a number of southern Indian cities which have so far been less impacted by organised retail than their northern Indian counterparts.

These smaller cities have consistently outpaced the larger metros in economic growth rates, and they are witnessing strong growth in incomes. But even more significant is the changing lifestyles and aspirations, and the fundamental shift in the consumer mindset in smaller cities.

Low property costs, lower operating costs and high brand acceptance in smaller cities are enabling retailers to achieve better margins than in India’s main cities. Retailers are introducing contemporary retail formats but at a smaller scale, with mall sizes typically between �00,000-�50,000 sq ft compared to 500,000 sq ft in the larger metros.

5. Nascent Cities–The Next FrontierPatna, Bhopal, Meerut, Asansol, Varanasi, Kolhapur, Sonipat, Madurai, Rajkot, Jabalpur, Dhanbad, Vijayawada, Srinagar, Panipat, Aurangabad, Solapur, Ranchi, Jodhpur, Guwahati

A further �9 smaller cities (most of which have populations of between �-�.5 million) are classified as “nascent”, largely reflecting low incomes and limited corporate activity. Organised retailing is currently very limited, but they are nonetheless on the “watch list” of pioneering retailers and mall developers that are seeking to benefit from “first mover advantage”. Progress towards the development of an active organised retail sector in these cities is likely to be slow, although market conditions can

change rapidly should their local economies be boosted by new corporate arrivals.

Jodhpur, Vijayawada and Varanasi are amongst the most popular tourist destinations in India, and their potential for organised retail is higher than other “nascent” cities. Others cities have significant manufacturing sectors, which have attracted department stores and hypermarkets. Pantaloon’s flagship brand “Big Bazaar” is already present in the majority of these cities. Developers like Prozone, are active in cities such as Aurangabad and Rajkot.

Final Observations Retail Developers Must Fight for a Place in the Modernisation ProcessThis report has shown how changes in consumer behaviour and the rapid transformation of India’s retail scene have bought the Indian retail real estate market to the point of “lift-off ”. Significant new opportunities across a broad range of geographies and formats are being captured by an increasing number of domestic real estate developers and investors, all eager to participate in a market that is still at an early stage of evolution. However in the rush to expand retail formats and build new malls, many schemes fall well below international standards. As more choice becomes available for the Indian consumer, a lot of malls and retail concepts will fail the test of time. Moreover, most retailers will struggle to implement aggressive expansion plans due a lack of suitable and affordable property, inefficient logistics operations and shortages of manpower skills. A rapidly growing, but highly challenging retail environment will inevitably result in many losers as well as winners.

The Next StageThe next stage in the evolution of the Indian retail market will be when international developers and financiers start to change the shape of India retailing, joining an elite group of visionary domestic developers, owners and retailers who have the scalability, the teams, the processes and the logistics required to flourish in this rapidly growing retail environment. In the next report in the Jones Lang LaSalle Meghraj series on India Retail Futures, we will look at the state of Indian retailing on the ground, and drawing on international best practice, we will provide insights into how new retail development is likely to evolve in terms of design, style and management, as the Indian retail sector truly becomes part of the global real estate market.

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COPYRIGHT © Jones Lang LSalle Meghraj 2007 No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of Jones Lang LSalle Meghraj. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them.

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