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Business News/ Industry / Retail/  Delhi has highest vacancy rate among emerging Asian cities
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Delhi has highest vacancy rate among emerging Asian cities

Chennai, Bangalore, Kolkata and Hyderabad too had high rates, featuring in the top 10 of 16 cities surveyed

Delhi NCR had the highest vacancy rate in malls at close to 25%, followed by Mumbai and Pune at nearly 20% each, according to the report. Photo: Priyanka Parashar/MintPremium
Delhi NCR had the highest vacancy rate in malls at close to 25%, followed by Mumbai and Pune at nearly 20% each, according to the report. Photo: Priyanka Parashar/Mint

Mumbai/Bangalore: Retail spaces, including shopping malls, in the National Capital Region (NCR) of Delhi, Mumbai and Pune have the highest vacancy rates among cities in emerging Asia, according to a new report.

“These cities witnessed considerable build-up of retail stock during the past 6-7 years on the back of high economic growth and the large influx of investment into retail," said the report by Jones Lang LaSalle (JLL) to be released on Wednesday at the Retail Leadership Summit in Mumbai.

“Thereafter, as economic activity slowed during 2011-13, major portion of these mall spaces remained vacant due to lack of interest from retailers," the report on retail realty in India said.

Delhi NCR had the highest vacancy rate in malls at close to 25%, followed by Mumbai and Pune at nearly 20% each, according to the report.

Chennai, Bangalore, Kolkata and Hyderabad all had a high vacancy rate, featuring in the top 10 of 16 cities surveyed in the report.

The report studied cities from six emerging economies based on their size, city characteristics, retail characteristics and retail growth potential. According to the World Atlas city population statistics, these 16 cities accounted for slightly over 6% of the total combined population of their countries.

Indian tier I cities quote a higher rent for prime city locations compared to other emerging Asian cities. Prime city locations in India offer few options for retailers because while there is little mall space available, these areas have a higher concentration of high-net-worth individuals.

Another reason for high rents is the lack of quality mall space. At the same time, Indian tier II cities offer attractive rentals to retailers compared to other cities in emerging Asian economies.

“A lot of developers are ambitious and there are a lot many malls coming up but some of these usually fail as they are low quality," said Jacob John, brand head at Louis Philippe, owned by Madura Fashion and Lifestyle, a division of Aditya Birla Nuvo Ltd.

Malls that sell space outright have a higher rate of vacancy than those that lease out spaces and have them professionally managed. According to the report, more than 75% of malls on sale have medium and high vacancy levels. Of the overall retail space in India, 47% of it is sold outright, whereas 53% is managed professionally.

“The percentage of professionally managed malls is increasing," said the report.

To be sure, malls like Inorbit and Phoenix Market City in Mumbai have few vacancy problems and have even been able to increase rents. “If you run your mall well, you’re looking at an increase in rentals of 7.5-10% per annum, conservatively," said Kishore Bhatija, chief executive officer (CEO), Inorbit Malls India Pvt. Ltd.

Mumbai, Delhi NCR, Chennai, Kolkata, Bangalore, Pune and Hyderabad account for over 70% of the country’s total retail stock, said the report.

“The top eight markets account for 70% of our revenues," said Sandeep Tarkas, president, customer strategy, and CEO Future Media and T24 mobile at Future Group. The group includes Future Retail Ltd and Future Lifestyle Fashions Ltd which operate retail chains such as Big Bazaar and Food Bazaar in 72 cities.

Future Group, led by Kishore Biyani, India’s largest listed retailer, is planning to enter new cities that are cheaper than the top 20, said Tarkas.

Khopoli, a small town in Maharashtra, will get its first mall later this year and brands such as Zara opened in Surat in May last year. “Premium brands are looking at emerging cities and if there is a good project they are willing to sign up," said Anupam Yog, director marketing, Virtuous Retail Services Pvt. Ltd which launched its first mall in Surat in May last year and has already got 80% occupancy.

Sanjay Prabhu, CEO, Mustard India, a real estate and mall management consultant focusing on tier III and IV cities, said his company has found brands that are ready to expand to small towns in well-designed and -managed projects. “There is a dearth of quality projects," he said.

The limited availability of quality real estate is restricting retailers from growing organically. For instance, Reliance Brands is going to open just 25 new stores in 2014 compared to 45 last year, said Darshan Mehta, CEO, Reliance Brands Ltd which has a portfolio of 13 brands such as Zegna, Diesel, Kenneth Cole and Steve Madden. “There is not much organic growth happening as there is lack of new quality malls coming up," said Mehta, adding he may have opened more stores if he had found the right spaces.

“Our biggest challenge is location"—even in top metros such as Mumbai and Delhi, said Tarkas. “From Bandra to Andheri (in Mumbai) we don’t have anything besides one Food Bazaar." Likewise, there are very few in the heart of Delhi as compared to the periphery of the city where there is more mall development taking place, said Tarkas.

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Published: 05 Feb 2014, 12:11 AM IST
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