Skyrocketing GS Road rentals rendering retailing business unviable

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Skyrocketing GS Road rentals rendering retailing business unviable

Harshita Himatsingka | June 15, 2019 15:59 hrs

GUWAHATI: GS Road is today a premium shopping locality. It is has donned the mantle of a kilometre long stretch offering both high-street and local shopping opportunities. Because of this reason, rent in the area is increasing exponentially. 

G Plus takes a look at some of the factors that have caused this rent hike and the underlying reasons behind it. 

Status of rentals in present-day Guwahati 

The rent of retail stores on GS Road area has gone up almost five times in the last ten years as the area has shown consistent growth patterns. The average price to acquire a retail store in the area starts from Rs 300 per square feet and extends to almost Rs 1,000 per square feet for many multinational corporation (MNCs) stores. 

“I started my shop in 2007 and at that time, our rent was Rs 6,000 per month. However now, because of how expansive GS Road has become, our rent has increased to Rs 30,000 per month,” said a tenant who owns an IT retail store in Christian Basti. 

A lot of retail stores that had started business a decade ago when GS Road was not as glamorous are struggling now because of high rentals. In the past, they could pay reasonable rent and afford all their overheads and other costs. But now they are struggling to even meet their rents, match all their costs and keep their businesses running. 

“The problem is with retail stores that started when GS Road was not the hub it is today. Those people had acquired their stores without proper agreements and because of that, both the tenants and landlords now have to face a number of problems,” said Amit Gangwal, a property consultant in that area. 

Gangwal explained that since 2012, no retail space has been leased without an agreement. Both the landlord and tenant have to agree to the terms and conditions, and only then a lease is finalized. The tenants have to sign a rental agreement for a minimum of 11 months which is included in the standard clause and have to pay a security deposit amounting to 6 months’ rent as per the landlord’s demand. This security fee is kept as a safeguard by the landlord so that she/he can use it if the tenant causes any damage to the property or is unable to make rent.
 
Most contracts nowadays are made for a time period of 9 years, wherein every 3 years, rent is escalated by 15 percent. An agreement of this sort is required as everyone has to have a trade license nowadays and one cannot get a trade license without submitting their rental application agreement. 

“I personally prefer to take on long-term rentals because nowadays, some businesses in this area are really struggling. They are not able to sustain for even 3 years and every time I have to look for new tenants, it is a hassle. I like long-term rentals because there is peace of mind that things are happening the right way according to the clauses mentioned in the agreement and both parties are happy,” said a landlord who owns properties on both GS Road and Zoo road. 

On speaking to tenants striving to keep their businesses afloat, they mentioned that overhead costs such as staff salary, electricity, maintenance, advertisement and brand-building are difficult to keep up with and one cannot also do away with any of these as they are important factors in running a business. 

“The problem we have today is that we are not being able to meet our overhead costs and there is no turnover. There is a lot of online competition and another problem is that GMC and GMDA do not allow any parking in many parts of the street,” said the IT retail store owner. 

Online competition has definitely hampered business, according to many retail business owners in the city. Nowadays, people do not want to bother with parking and traffic in the city anymore and they simply prefer to buy things online as it is delivered right to their doorstep and they can avail many discounts. The government also has no major rules and regulations for online companies which make it easier for them to sustain since they don’t have to pay extensive taxes. Most of them get foreign funding every quarter of the fiscal year and they can work out of warehouses which saves them a lot of money on overhead costs. 

Property consultant Gangwal mentioned to G Plus that his company and many others get around 50 calls a day for inquiries about retail spaces on GS Road. At present, there is a huge demand for space but there is no actual physical space in that area. 

Some retail owners said that this increase in demand is making landlords in the city unfair with their power and they are asking for insane amounts of rent money and security prices. Some landlords are even threatening tenants who have been renting their space for as long as 10 years to vacate the premises.

“Currently, there is an indirect console in the market and there is an inverse demand and ratio aspect, which means that we as landlords cannot charge something which is not a trend. We cannot go and charge Rs 500 per square feet because no one would pay that amount. Everything in this sector is decided by market rates, but it follows a trend and we have to work with the trend for successful business earnings,” said the landlord to counter this agreement. 

However, she did agree that there are some landlords in the city who are charging exorbitant rates just based on demand. But if they continue doing this, they won’t be able to survive in the market for a long time.
 
“The business sector on GS Road has changed a lot over the past years and the rates that were feasible 10 years ago are not at all viable today. If sales increase, rent will also go up and this is just the way the market works. Everyone who invests in a business today has to have a smart plan for their business,” explained Gangwal.
 
While tenants say that rent should be capped against demand, currently there are no such laws and the fact remains that market rates decide rent amount and that it is the major deciding factor for everything. 

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