Showing posts from April, 2008

High Real Estate Costs and Retail

The real estate rates in the country today are truly stratospheric. At their basic, the commercial rates (both capital value and rents) reflect the profile and the potential of the catchment area. But rates get skewed by the demand-supply mismatch, the amount of black money (esp. in India), the market sentiments and the dynamics in other channels of investment.

The rates in India are amongst the highest in the world. The commercial lease rates in markets like Khan Market have crossed Rs. 12000/- per annum. The markets like GK1, M Block in Delhi or Linking road in Mumbai are close to Rs. 8000/- per annum for good real estate. This has been caused by low supply of good real estate, euphoria in India’s potential and huge inflows from abroad -from Indians, foreign funds and investors.

The lease rates are comparable to those in the richest countries. The market potential is nowhere close to them. This means that the retail business starts off with a great handicap. The businesses have to fin…