MINT, July 26, 2011

Sapna Agarwal

Mall developers entering an increasingly crowded market are calling in experts to help them design and run their new projects. One such expert estimates that professional managers will be involved in every four out of five new malls that will open for business in the coming months.

Currently, one out of five malls is run by professionals, according to Sanjay Dutt, chief executive officer of Jones Lang LaSalle Property Consultants (India) Pvt. Ltd, a real estate consultancy services firm.

Quite a few firms, including Beyond Squarefeet Advisory Pvt. Ltd, Pioneer Property Zone Services Pvt. Ltd, Star Shopping Centres Pvt. Ltd and Prop Care, a division of real estate developer Mantri Group, are offering such services.

Even multinationals, including Jones Lang LaSalle Property Consultants, Knight Frank India Pvt. Ltd and CB Richard Ellis, which offer property consultancy, development and management services, are setting up separate divisions to cater to the growing demand of managing malls.

Such companies commit to the developers assured revenue and occupancy. In a builder-operated mall, the space is usually pre-sold to investors and retailers and the mall owners are not involved in driving footfalls.

In the new business model, consultancy fees are typically linked to incentives based on key performance indicators such as occupancy levels and rentals, said Dutt. The change is a result of the mall developers’ realization that the way a mall is managed has a direct impact on revenue and rentals.

“Professional management has a critical role to play to ensure the success of a mall. The combination of tenants and contracts is critical,” said Richard Cuthbertson, research director, Oxford Institute of Retail Management, Said Business School, University of Oxford. He has been conducting research at the International Management Institute, Kolkata on the future of India’s retail business.

“Organized retail is expected to add approximately 10 million sq. ft of new retail space spread across 50 malls in the next two years. About 300 malls now make up the organized retail space in India, spread across 50 million sq. ft,” said Anshuman Magazine, chairman and managing director, CB Richard Ellis.

India’s largest retailer by market value, Kishore Biyani, is also dabbling in this space. His venture capital arm, Future Ventures India Ltd, has invested in Star Shopping Centres, a three-year-old company that manages malls.

Star Shopping Centres signs up a property for 18-24 years and takes the responsibility for the entire asset as a tenant, offering the developer a guaranteed rent. It is working on three projects spread across 2 million sq. ft, has got proposals for 10 million sq. ft of new business but may take up 3 million sq. ft, according to Pranay Sinha, its co-founder.

Running a successful mall is not just about the right location. It includes getting the right tenants, merchandise mix, understanding the competition and marketing. Also, over the lifetime of the mall, it requires managing the facility, monitoring sales, planning events to keep the buzz alive and collection of lease rentals and so on.

“On an average, a mall operator needs to interact with hundreds of people regularly to run a successful mall,” said Susil Dungarwal, founder, Beyond Squarefeet. The developer may not have the bandwidth or know-how to do this and this is where a firm like Beyond Squarefeet steps in.

The rapidly growing sector is also facing a talent crunch. “Hiring a consultancy firm ensures continuity in services,” said A.K. Beri, managing director, West Asia property and asset management, Jones Lang LaSalle.

Organized retail accounts for 8% of the overall retail trade in India.

With competition intensifying, new malls are often being launched in close proximity to existing ones. Since they offer better experience and service, old malls run the risk of losing business. “A mall has to constantly evolve and upgrade service offerings to ensure footfalls and conversions,” said Devangshu Dutta, founder of retail consulting firm Third Eyesight.

“We have got a lot of enquires for providing such services and are now setting up a mall management division for end-to-end services,” said Rituraj Verma, national director, Knight Frank. His colleagues in Singapore are helping to set up the new wing.

To be sure, outsourcing mall management doesn’t work for everyone. For instance, Select City Walk has built up its inhouse capabilities after a failed experiment with an international mall operator. “We are learning as we proceed,” said Arjun Khanna, director, Select City Walk mall, promoted by Select Infrastructure Pvt. Ltd. The international consultant struggled to manage expectations. “There are very few people who can run it with passion the way we do,” said Khanna.

(This story was published in Mint, a partner of the Wall Street Journal.)