Demand lifts rentals at premium malls
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New Delhi: Rentals at premium malls rose in the first half of 2016 due to robust demand from retailers opening new outlets, property consultant CBRE South Asia Pvt. Ltd said.
Rentals in primary mall clusters including Vasant Kunj, Saket and Gurgaon in the National Capital Region (NCR) centred around Delhi, and Kurla, Ghatkopar and Lower Parel in Mumbai have gone up, said a CBRE report on Tuesday. Areas in East Bengaluru such as Whitefield and Ulsoor as well as those in West Bengaluru also witnessed a rise in rental rates.
Among the major mall clusters, the rentals have risen by 45.5% in Noida, 30.8% in Gurgaon, 28.6% in Vasant Kunj and 10.5% in East Bangalore, the report said.
The trend is based on market forces as there is a gap between demand and supply and as long as that exists, the rates will keep going up, said Rajeev Talwar, chief executive officer of DLF Ltd, India’s largest property developer. DLF recently opened the 2 million sq. ft DLF Mall of India in Noida.
Among major shopping centres in NCR, Saket District Centre had the highest rentals, followed by Vasant Kunj and Gurgaon, the report said.
The increase in rent was driven by rising demand, especially from international retailers. During the six-month period, Swedish clothing retailer Hennes & Mauritz (H&M) opened its biggest store in India spread across 40,000 sq. ft at DLF Mall of India. H&M already has stores in NCR and Bengaluru. US clothing company GAP opened its first Mumbai store at Oberoi Mall in Goregaon, while Japanese lingerie brand Wacoal and Dutch brand Hunkemoller opened their first stores in Mumbai at High Street Phoenix Grand Galleria and Palladium malls.
In Bengaluru, while Shoppers Stop, Levi’s, Puma and Pepe Jeans opened stores at Orion East Mall, Fabindia, GAP, Haagen-Dazs and Mebaz opened outlets at Phoenix Market City, Whitefield.
According to CBRE, about 1.5 million sq. ft of organized retail space was added in the first half of 2016, but that was not enough to meet robust demand.
Major projects launched during the period include Logix City Centre in Noida, Brigade Orion East and Mfar in Bengaluru and Westend Mall in Pune.
Building malls is a capital-intensive activity and it takes 4-6 years to develop a mall property, said Vivek Kaul, head, retail services India at CBRE South Asia Pvt. Ltd, adding this means it will take time to bridge the gap between demand and supply.
However, the uptick is restricted to premium markets and mall developers in tier 1 and tier 2 cities continue to struggle, according to another report.
Vacancy rate in superior malls was under 10% in 2015, while average and poor malls had vacancies of 15-40% on an average, according to a July report by property consultant Jones Lang LaSalle (JLL) India.
The current gap between demand and supply stems from the days of the global financial crisis of 2008. High vacancy in the years following the crisis, coupled with poor consumer and retailer sentiment, prompted many developers to defer or shelve mall projects.
However, 2015 saw a strong jump in premium mall completions, after witnessing a lull in terms of fresh supply during the previous three years.
The outcome of the 2014 general election turned out to be a turnaround moment as a new government was voted to power, according to the JLL report.
It will take another 5-7 years to bridge the gap between demand and supply and till then, rentals will either be constant or keep increasing, but they won’t come down, CBRE’s Kaul said.