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From Selling to Leasing

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One of the issues owners face when entering emerging markets is that in places like India and China historically developers have sold space to tenants--not leased. The arrangements essentially created retail condominiums. But doing that has its pitfalls. For one, it weakens an owners' position in trying to enforce an overriding aesthetic for a property. It also gets tricky when figuring out how to do repairs or renovations as a central party can't come in and push through a vision. Instead, you have to get everyone to sign on.

That's one reason that Western real estate pros are pushing to change the relationship and get more tenants to lease space rather than buy it.

Indian Express has a piece describing this dynamic in India.

When malls were first constructed in the country, developers preferred to sell off space to retailers and investors, and book profits. While they were able to quickly recoup their investments, this was disastrous for the mall. As ownership became fragmented, nobody was responsible for maintenance and promotion. Also, once space is sold, tenant mix and zoning can't be controlled. Hence, many of the early malls failed to generate adequate footfalls and sales. Currently, there are about 80 odd malls in the country and property consultancy Jones Lang Lasalle Meghraj (JLLM) estimates that 90 per cent don't measure up to international standards. These days the more aware developers are only leasing space. And since their aim now is to maximise long-term returns, they are beginning to adopt comprehensive mall management.

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Elaine Misonzhnik

Senior associate editor Elaine Misonzhnik has been writing for National Real Estate Investor since June 2006 and has covered commercial real estate for more than 12 years. She first became...
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