New Delhi: Modern retailers in India stand to benefit with rentals at malls and high streets across cities falling, according to a report by real estate consultant Cushman and Wakefield.
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“Any reduction in mall rentals is good news, as for us the occupational cost of rentals and maintenance of the store amounts to a significant amount of the revenue,” said C.B. Navalkar, chief financial officer, Shopper’s Stop Ltd.
One reason for the fall in rentals is the amount of space available, yet unoccupied in malls. This increased to 19% of total mall space in the second quarter (April-June) of the year from 10% in the first, according to the report.
Ahmedabad saw the sharpest decline, with rents in malls in some areas falling by up to 39%. Mall rentals in west Delhi corrected by 14% while those in Gurgaon saw an 8% correction.
The only exceptions to this countrywide trend were Banjara Hills in Hyderabad and Ghatkopar in Mumbai where mall rentals increased by 8% and 2%, respectively.
Sign of the times: Rentals in New Delhi’s posh Basant Lok market have plunged 29% in the second quarter, mirroring a countrywide trend. Ramesh Pathania / Mint
Rents for high street retail space, too, fell. Rents in New Delhi’s posh Basant Lok market plunged 29% while those in Kemps Corner and Breach Candy markets in Mumbai fell by 24%.
“We are likely to see further corrections, going forward, as a result of renegotiations,” said Jaideep Wahi, director, agency, retail services, Cushman and Wakefield. “Retailers are looking at changing their business model with upcoming malls into a revenue share or minimum guarantee model as an alternative to fixed rental model.”
“Landlords are now appreciating (the) revenue-sharing model,” said Ajit Joshi, chief executive officer, Infiniti Retail Ltd, a wholly owned retail business of the Tata group. “This benefits both. The landlord takes interest in the well-being of the retailer as he maintains the property very well and he ensures there are marketing activities in the mall that brings good footfalls. The advantage for retailers is that they will pay a little less rent, and when good times come both (parties) enjoy.”
The report also said delays in development and construction of new mall space, and cancellation of previously announced retail projects have resulted in reduction of estimated mall supply by the end of 2009 to 8.55 million sq. ft, around 50% lower than that estimated at the beginning of the year.
One reason for the fall in rentals is the amount of space available, yet unoccupied in malls. This increased to 19% of total mall space in the second quarter (April-June) of the year from 10% in the first. Sandeep Bhatnagar / Mint
It added that supply in the second quarter of 2009 was, at 1.14 million sq. ft, only 3% more than that in the previous quarter.
Several mall projects have been postponed or cancelled given the lukewarm response from retailers, the report said.
In Mumbai, for instance, two malls measuring 2.5 million sq. ft have been shelved due to sluggish demand and have been converted into residential and commercial projects, it added, without naming the projects.
Retailers who were earlier optimistic about the prospects for their business are discovering that consumer demand is slowing, said Navalkar of Shopper’s Stop.
“To that extent they have also toned down their own projections for expansion.”