The era of office-retail complexes: a tale of three cities

The concept of Office-Retail Complex (ORC) emerged from the need to move ahead from vanilla office buildings to those which offered retail services to support the commercial offices running in the development. Organised retail cannot be constrained to the confines of retail mall developments. With quality malls running at near-capacity, retailers needed to look beyond the conventional high streets, which may not have offered the same flexibility and scalability as new-age buildings. ORCs are extremely effective at bridging this gap while offering the optimum business opportunity through lower costs and a varied customer base. The most common retail formats in ORCs are the food & beverage segments and banking & financial services. This stems from the fact that eating out and managing personal finances while remaining key concerns of the current working demographic are increasingly being viewed as activities to be managed during breaks from working hours. While other categories are still finding feet, fitness, fashion, electronics & gadgets and automobiles should find this format much to their liking through customised offerings based on the profile of the business district and the medium income levels prevailing in that location.

The major markets being closely watched from the perspective of ORCs are Gurgaon, Mumbai and Bengaluru. We posed questions to three of our market experts – Kunal Jaiswal, Senior Associate Director, Gurgaon; Nishith Agarwal, Senior Associate Director, Mumbai and Chintan Mithaiwala, Senior Associate Director, Bengaluru to hear it from the horse’s mouth. And here’s what we heard from each: 

Why was this new format needed?

Kunal, Gurgaon: This merger of retail with office is more relevant in cases where the retail spaces have been vacant due to multiple factors ranging from low footfalls to exits by once existing retailers. Swiftly increasing office space absorption over the last few years has led to a decline in the available Grade A commercial space, especially in Tier 1 cities. Besides, retail space owners only care about their spaces milking rental incomes. Be it from retail or office occupiers. Vacant spaces even reduce the marketability of the complex.  Other aspects to consider are location and footfall. Thanks to ecommerce retailing on a high, brick-and-mortar retailers are already seeing tough times unless they look at a new niche that gives them an edge. Hence they rather be where there is ready footfall due to large numbers of office-goers and not be stubborn about being in a retail-only zone where there is an everyday fight to attract external walk-ins.

Nishith, Mumbai: Retailers have identified the ORC format as a good alternative due to lack/absence of quality retail space in the Mumbai market.

Chintan, Bengaluru: Office and retail spaces have been evolving over the years. The real estate market in Bengaluru prides in being largely client centric and one that focuses on providing a complete experience to their tenants. The need for overall experience has encouraged retailers to house themselves in an office campus, thus increasing the opportunity for a higher footfall. Predominately driven by IT / ITeS corporates with huge campuses, Bengaluru real estate developments offer large catchment to retailers, which when compared to a standalone structure offers a definite advantage. 

What are the key drivers of this growing trend in your city?

Kunal, Gurgaon: More jobs, increase in disposable income, traffic scenarios and dearth of amenities in close vicinity.

Nishith, Mumbai:

  1. ORCs offer a higher value for money with comparatively lower rents despite being offered prime ground floor spaces in comparison to premium malls. Weekday footfalls as well as higher guaranteed viewership as compared to malls.
  2. With the added benefit of nearby residential nodes, such ORCs at their optimum have the potential to operate as standalone retail malls in respect of the lower floors and generate similar footfalls and business incomes for retailers as malls.
  3. ORCs offer a lower running cost as compared to high streets and premium malls

Chintan, Bengaluru: High streets and retail hubs have become expensive with comparatively lower footfall than ORC. Also, there is a price point advantage for retailers in an ORC versus retailers of the high street. With increase in daily spend by consumers, ORC makes it a more sustainable option for retailers. 

What change could the inflow of retailers bring about in the CBDs?

Kunal, Gurgaon: Revenues for sure. Retail spaces normally derive higher rentals. Moreover, retailers add convenience which in turn makes the development an attractive proposition from an employee’s convenience perspective.

Nishith, Mumbai: While the old CBD (Nariman Point) does have a few retail outlets to talk about, it may not feature high on the list of retailers as buildings are of old design and may not offer amenities such as ample parking space, large display area, etc. Also, Mumbai’s CBD area is already proliferated by local F&B outlets and high streets, thereby making the ORC concept somewhat redundant. As a result, retail rents fetch a higher premium over office rents in modern office locations compared to the CBD.

Chintan, Bengaluru: The traditional CBD has dearth of quality supply. With the inflow of quality and varied retailers, CBD can hope to make it a destiny for consumers.

Overall, do you think retailers are kicked about the concept? What is the current market sentiment?

Kunal, Gurgaon: Predictive demand, assured footfalls are definitely very helpful for retailers. Assessment of the business could be easily done by looking at the occupant profile in a commercial tower. Retailers are definitely evaluating such offerings with great interest.

Nishith, Mumbai: Given the lack of quality retail space across the top 3 Indian cities, ORCs will definitely see good traction at a time when many domestic and international retailers have made plans for expansion.

Chintan, Bengaluru: Retailers are upbeat about the growth opportunities. With influx of more and more ORCs, retailers see a larger overall potential in the market.

Would this mean death of retail in mall developments?

Kunal, Gurgaon: Not really, it would definitely make malls think on their strategies to ensure they are constantly doing enough to keep the footfalls coming. However, grade A malls at good locations would not really get affected.

Nishith, Mumbai: F&B is the most dominant category, as it accounts for 46% of the total retail categories’ presence. Banks (16%) and Electronics-Mobile-Telecom (12%) are the next big categories across Mumbai’s ORCs. Apparel, Footwear, Cosmetics, Cinema etc. still prefer malls. Hence this would not mean the death of retail in mall development.

Chintan, Bengaluru: No. While ORCs predominately cater to F&B, ATM, and support retail amenities, for apparel, cinema, large format shopping, etc. will still need to be delivered to consumers via malls.

How can ORCs benefit commercial and retail occupiers of your city?

Kunal, Gurgaon: Hugely beneficial, office spaces with amenities like ATMs, grocery/daily needs stores, F&B outlets in the same complex or even in close proximity make life extremely convenient for both employees working in these offices and on the other side help the retailers with consistency in demand and thereby helping them in their very existence. In fact new developments are being planned in a manner wherein there is a significant amount of amenities being introduced into the same complex. This gives the developers/owners a better chance of attracting commercial/office takers. Classic examples are that of Cyber Hub in Gurgaon, UB City in Bengaluru and many others as well. Larger companies do take employee convenience very seriously and a place could get preference over another purely basis the amenities being offered along with the office space. I strongly feel that in the longer run, both need to be planned together.

Nishith, Mumbai:

  1. Vacancy Levels – This is a major cause of concern for retail companies. The major cause for the merger of retail and office spaces is mostly a function of retail rentals not meeting rental expectations, also keeping a space vacant in a commercial complex or mall resulting in negative cash flows. Owing to high maintenance charges, many owners actually end up losing money in cases where the space remains vacant for a long period.
  2. Introduction of quality retail space – Many of the existing and prime malls are running on full capacity. Dearth of quality space is therefore forcing retail companies to look for alternative options.
  3. Rents and running costs are lower in ORCs as compared to high streets and malls.
  4. Wide customer base due to daily office going employees.

Chintan, Bengaluru: Benefits are many through ORCs. For an employee, it offers convenience. For a builder it provides differentiator or selling points, in addition to higher revenue and brand perception. With the increase in demand for a Live-Work-Play culture, ORCs will be one of the main highlights during the project planning and design.

Sweeter 2016

2015 saw India as a relatively calmer but steadily active investment destination. With the foundation of the real estate industry well laid out now, 2016 is very ready for take-off.
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