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RESEARCH & FORECAST REPORT LAHORE RETAIL MARKET OVERVIEW - Q2, 2011 Accelerating success.
RESEARCH & FORECAST REPORTLAHORE RETAIL MARKET OVERVIEW - Q2, 2011
Accelerating success.
LAhore retAiLREsEARcH & FOREcAsT REpORT
www.colliers.com/pakistan
Q2 2011 | retail
LAhore CitY
Lahore, with its vibrant culture is filled with an aura of historical mystification. With its proximity to District of Kasur in the South and Sheikhupura District in the North-west, the city spans 1,772 sq. km in land area and its catchment comprises largely of converted agricultural lands. With its strategic location in the heart of Pakistan, it links the North of the country with the South as well as enjoys the key trade route between Pakistan and india. Dating back centuries, it has always felt young with its vivacious lifestyle and diverse community.
LAhore eCoNoMY
renowned as the cultural capital of Pakistan, Lahore envisages to develop itself as a regional hub of Punjab and now manifesting fast as the North’s commercial capital. Underpinned with strong fundamentals for growth and investment, Lahore stands at 36th position out of 151 cities included in the survey in terms of GDP growth, according to Global City GDP rankings 2008 -2025 published by PriceWaterhouseCoopers. Lahore is projected to raise its GDP from US$ 40 billion (PPP) in 2005 to US$ 120 billion (PPP) by 2025 at a growth rate of 5.6% per annum, which is close to the current national average of Pakistan.
the Federal Bureau of Statistics constantly monitors inflation and other CPi indicators, ensuring an up-to-date information to source the flow of necessities to the market and ultimately affecting the disposable income of the urban center. the sustainable economic development of the city has relied mostly on this indicator, however, with inconsistent price hikes in commodities and fuel along with consistent deficit budget, it is likely that the current inflation figure of 12 to 13 percent (Q1 2011 as reported by FBS) is likely to touch 14 to 15 percent by Q2 2011.
LAhore DeMoGrAPhY
According to Census 1998, the population of Lahore district and its catchments was estimated at 6.94 million and which as per estimates, grew to 7.71 million in 2001, i.e. 7.04 million in Lahore City District, 0.54 million in tehsil Ferozwala of District Sheikhupura and 0.13 million in parts of tehsil Kasur. the urban population represents most of the total estimated population in Lahore District, according to NeSPAK estimates. Based on the aforesaid estimates, the population within the Lahore district will grow at a rate of 2.82% within urban catchment and 4.47% in rural areas.
iMPLiCAtioNS & FUtUre ProSPeCtS
over the last few years, Lahore Development Authority (LDA) has taken substantial steps to plan and develop zoning and development policies and by-laws, implementing and executing the same for a planned expansion of Lahore. Despite considerable efforts, yet a need for a comprehensive master plan for Lahore exists, which will suffice urban / town planners, consultants and engineering firms’ needs to better plan future development of Lahore, keeping in view the framework.
Whilst, the need for comprehensive urban development plan for Lahore has consistently been reviewed in the form of Master Plan for Greater Lahore 1966, Lahore Structure Plan 1981-2000 and Lahore integrated Master Plan 2021. however, it only indicates the sensible approach to planning and urbanization and awaits a framework for Lahore incorporating the impact of global
2010 2011
Q1
Q2
VAcANcY —
NET ABsORpTION
cONsTRucTION —
RENTAL RATE
MARKET INdIcATORs
MONTHLY cONsuMpTION ExpENdITuRE OF HOusEHOLds 2007-08 IN puNjAB uRBAN AREAs
38%
5%6%
4%1%
6%
21%
7% 12%
Food, beverage and tobacco Apparel, textile and footwearTransport and communication Cleaning, laundry and personal appearanceRecreation and entertainment EducationRent Fuel and lightingMiscellaneous
Source: Federal Bureau of Statistics
Lahore
the current focus of Government of Punjab’s public investment is on infrastructure development and improvement within key urban centres, relying on public private partnership. the Punjab Public Private Partnership for infrastructure Act 2010 governs such initiative. overhead bridges and flyovers, roads carpeting and expansion among urban centres, new public funded residential schemes and others with cooperation from private equity, parking plazas for efficient transport mechanism, and data base management cells are some of key achievements of the provincial Government. the PPP initiatives in education, information technology, estate management and construction are already bearing fruitful results by bringing higher quality standards, transparency as well as employment for resources.
With the construction of the Lahore ring road, repair and extension of existing main roads, M3 (Faisalabad—Lahore Motorway) and Upcoming M4 (Faisalabad—Multan highway), Kalma Chowk Flyover and Bhatta Chowk expansion, Lahore is and will experience the effect of such infrastructure improvements in trade activity and population settlement, resulting in renewed demand levels for retail and residential sectors in the city.
LAhore reAL eStAte MArKet reVieW the last decade has been a turnaround for real estate sector in all major urban centers across Pakistan. Numerous landmark real estate developments were launched; however, real impact has been on capital values since 2000. Consequently, most of the projects of retail, commercial and residential projects which were announced in Lahore specifically from years 2005 to 2007, were as a result of such pace in real estate sector.
Lahore is commercially offering businesses across the country and globally, a strategic location to access the rest of the urban and rural markets of Punjab and Pakistan, hence, the key areas to focus to improve the global competitiveness of the city and outreach include environmental protection, transportation and traffic management, education & vocational training for skill development, sustainable and green initiative based developments.
LAhore trANSPort & iNFrAStrUCtUre reVieW
the initiative for expansion of roads, overhead bridges and underpasses in the catchments of Main Boulevard and Canal Bank road has taken priority. the current passenger transport system depends on buses network, which include services from Lahore transport Company, Daewoo and several other private entities. A monorail as well advance traffic management system in collaboration with foreign firms is in pipeline for Lahore.
Although such major infrastructure and transport initiatives signify that a planned expansion to the city’s commutation service is in place, however, at the same time, highlights the need for such initiatives on timely basis for delivery of smooth urbanization and effective traffic management system. this reflects the basic drawback of Lahore’s development model, wherein the pace of population growth with its own dynamics is at odds with an equally modern and supportive infrastructure base.
Nishtar Town
Iqbal Town
Wahga Town
Cantonment Aziz Bhatti Town
Gulberg
Samnabad Town
Data Gunj
Bukhsh Town
Shalimar Town
Ravi Town
India
Kasour District
Sheikhupura District
River Ravi
Tehsil Ferozwala
Kahna Nau
UBD Canal
Model Town Walton
Cantonment
AllamIqbal
International Airport
Ferozpur Road
Walton City
Multan Road
Flow of Urbanization1947-19801980-2011
pAKIsTAN pROpERTY INdEx Vs pAKIsTAN TIMELINE
LAHORE uRBANIsATION (1947 - 2011)
Source: NeSPAK ‘integratedMasterplan for Lahore 2021’
TOWNs OF LAHORE
Source: NeSPAK ‘integratedMasterplan for Lahore 2021’
Source: Colliers international research
0
1
2
3
4
5
6
7
8
9
2000 2003 2005 2007 2010 2012
Prop
erty
Pric
e In
dex
Relative Scale of DevelopmentOptimistic Market PerceptionPassamistic Market PerceptionUS Invasion of
Afghanistan, US pledges Military Assistance
War On Terror
Readmitted to Commonwealth
Earth Quake Lal Masjid Standoff
Presidential Elections
Emergency Declared
Bhuto Assasinated, Elections
Floods
p. 3 | cOLLIERs INTERNATIONAL
research & forecast report | Q2 2011 | retail | research & advisory
LAhore retAiL MArKet reVieW
the commercial retail environment of Lahore is predominantly limited to the old, established retail areas. Designated retail area such as Gulberg has Liberty Market whereas Main Boulevard, Jail road and M. M. Alam road which are other major retail hotspots. Y Block is DhA’s retail avenue with Model town and Garden town having similar retail areas. icchra, Anarkali, Mall road and Azam Market are the traditional shopping locations of old Lahore. the precincts above and below canal bank road segment Lahore’s commercial outlook as well, with almost all of the existing prime and upcoming high end developments on the south whereas old established retail markets north of the canal bank road. traditionally, retail activity has been carried out in markets & open bazaars. this trend has changed significantly over the past few years. With the entry of brands and stronger local retailers, there was an unprecedented surge in demand for retail space in Lahore – this was followed by an increase in sale & rental values of retail property across the city. to cater for this increased demand, many projects have been launched since 2002. Almost all of them are mixed-use developments with office space &/or apartment above retail floors.
LAhore retAiL SUPPLY
our research estimates an approximate 4 million sq. ft. of mixed grade retail space existing within different precincts of Lahore. Majority of them is clustered in Gulberg and Main Boulevard. Most of the shopping centers are not professionally managed and lack a properly planned tenancy mix concept. only few developments meets the international mall standards with no anchor tenant to drive and attract major footfall.
Quality malls such as Xinhua Mall, Bahria’s Mall of Lahore and Fortress Stadium Market on the other hand enjoy the presence of most major brands operating in the city and enjoy high occupancy levels due to presence of an anchor tenant. Limited shopping centers have properly organized covered parking areas with most utilizing a free/paid parking area on the encroachment in front of the shopping center.
As per our estimates, approximately 1.6 million sq. ft. of mall space, equivalent of 40% of the existing space will be further injected into the city’s retail space within the next 2 to 3 years. Majority of the upcoming commercial towers in Lahore comprise of 2-3 floors and have given due consideration to adequate parking bays as well as wider corridors, maintenance contracts and facilities. in addition, the upcoming malls have given greater regard to anchor tenant and sub anchor tenant’s space requirements.
it is Colliers international’s view that the premium retail supply entering into the market as per plans is and will experience delay in successful delivery/handover of the project. Despite the delays, retail supply will consistently be released into the market, mainly due to the factors like shorter completion dates, high yields, quicker pay back periods, strategic locations and greater market accessibility.
LAhore retAiL DeMAND
in comparison with other asset classes, the retail sector’s current demand situation is slightly better. the key drivers of demand for retail space have essentially been the large population increase with diverse income groups, investors who tap on commercialized lifestyle of specific population segments and among others, the demand for branded accessories.
our research suggests that average retail space demanded has been sourced in branded clothing’s, garments and fabrics, electronics and jewelry, with an average size demanded ranging from 180 to 250 sqft. the typical lease lengths offered for such tenants are between 3 to 5 years.
As a direct result of LDA’s decision to demolish illegal plazas, the investors / tenants have been forced to relocate their business to a more commercially viable location. this has further ignited the latent demand for retail developments.
12%
45%
8% 9%
8%
3% 3%
3% 5%
3% 1%
MM Alam Road Main Boulevard jail Road Liberty Market Kalma chowk Iqbal Town Mall Road / cantt Ferozepur Road dHA Lahore Model Town, Link Road Others
4%
26% 5% 3%
9%
31% 5%
10%
7%
cantonment Ferozepur Road jail Road Kalma chowk Liberty Market Main Boulevard MM Alam Road Model Town Near Airport
ExIsTINg RETAIL suppLY - AREA WIsE
FuTuRE RETAIL suppLY - AREA WIsE
0%
100%
200%
300%
400%
500%
600%
0
200
400
600
800
1000
1200
Hom
e Ap
plian
ces
Com
pute
rs
Body
Sho
p / P
erfu
mes
Mob
ile O
pera
tors
Jewe
llers
Shoe
Bra
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Optic
ians
Linen
/ Fa
brics
Food
/ Ca
fé
Offic
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pplie
s
Trav
el Ag
ents
Trad
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ervic
es
Cosm
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Fash
ion A
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sorie
s
ing S
ervic
es
Wat
ches
Stat
ioner
y
Garm
ents
Real
Esta
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roke
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Inve
stmen
t Pur
pose
s
Mob
iles
Bout
ique
Elec
tronic
s
Med
ia / M
arke
ting…
Ratio
Sq.F
t
Standard Space Required Actual Interest Ratio
RETAIL dEMANd pROFILE
Source: Colliers international research
Source: Colliers international research
Source: Colliers international research
research & forecast report | Q2 2011 | retail | research & advisory
cOLLIERs INTERNATIONAL | p. 4
PriCiNG
the current rental levels are in diverse range. Factors that contribute towards the rental of the shop as well as anchor store include, but are not limited to, location of development, positioning of the shop as well as project, occupancy levels, services and amenities and footfall of individual floors/developments. typical rentals for shops in main precincts in operational developments are in the range of PKr 225 to 275 per sq.ft on ground floor, whereas floors above fetch slightly less rentals. the rent typically excludes service and hVAC charges ranging from PKr 60 to 70 per sq.ft. the current gap between asking and actual transactions in retail assets is currently at approx. 20 to 25%. Anchor stores requiring bigger spaces are given due consideration for attracting footfall and offered rates between PKr 70 to 110 per sq.ft.
the current sale values have shown stagnancy for several quarters now and currently stand in the range of PKr 50,000 to 70,000 per sq.ft for medium quality units and PKr 70,000 to 100,000 per sq.ft for high quality locations. Capital Value tax of 2% and Advance income tax of 5% are applicable on gross value of all transactions.
oUtLooK
Although Lahore’s retail market is doing well by housing some of the top and finest brands, it still needs to implement international mall standards conceptually, completely and correctly. the change in consumer’s preference towards one stop shopping experience is a positive indication towards presence of demand for good sized quality malls, having different national and international brands providing variety for the consumers.
Given the key performance indicators within the retail sector, it is our view that whilst the impact of the global financial crunch has been minimal and that the market has been stagnant for last one year after price correction in 2005-2008.
While there may be short term instability perceived in the market, the medium to long term outlook remains strong and optimistic.
Q2 2011 updATE Rental Values, capital Values and Yields
pREcINcT RENTAL RANgE sALEs RANgE YIELd
pRIME MARKET pKR psF pM pKR psF
Main Boulevard (towards Jail road) 225-250 70,000-90,000 3.33 - 3.86%
Main Boulevard (towards Kalma Chowk) 200-250 60,000-80,000 3.75-4.00%
MM Alam road 225-275 50,000-70,000 4.71 - 5.40%
suB-pRIME MARKET
Model town 250-270 50,000-70,000 4.63%-6.00%
Cantonement 225-250 70,000-100,000 3.00 - 3.86%
Liberty 75-150 60,000-90,000 1.50-2.00%
REAL EsTATE FuNdAMENTALs Vs sENTIMENTs
lahore economic prosparity lies with its key sectors of invesment; amoung them, real estate is an iconic challenge as well eye opener for investors. Fundamentally, lahore has been a retail destination, even for residents in major urban centres around lahore. this sector (real estate) and this asset (retail) in lahore has much to offer to investors than just the norm, due to the following key highlights:
• Retail developments under construction and planning are of international standards• Yields are still better than national averages • Capital values are stabler and attractive than most of other urban centres of Punjab• Capital values are NOT directly dependent on stock exchange fluctuations• Rents provide sustainable source of income, subject to yearly increment
Source: Colliers international research
Source: Colliers international research
RETAIL VAcANcY
0%
5%
10%
15%
20%
25%
30%
35%
High End RetailMalls
Medium BrandedMalls
Lower to MediumBranded Malls
Average Vacancy
research & forecast report | Q2 2011 | retail | research & advisory
cOLLIERs INTERNATIONAL | p. 5
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REsEARcHER:S. Kazim Ali Bokhariresearch Manager - NorthColliers international Pakistan Pvt. Ltd.office No. 2, executive Floor, Al Qadir heights, New Garden town, Main Boulevard, LahorePakistan tel +92 423 584 3474-6 Fax +92 21 3563 6382email: [email protected]
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research & forecast report | Q2 2011 | retail | research & advisory
