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Business News/ Industry / Retail/  Distressed malls look to restructure or shutter operations

Distressed malls look to restructure or shutter operations

Fourteen malls with a combined space of 3.5-4.5 million sq. ft likely to withdraw from the market in the next 12 months, say analysts

A file photo of Nirmal Lifestyle mall in Mulund, Mumbai. The mall is planning to shut down as the developer plans a new project. Photo: Hindustan TimesPremium
A file photo of Nirmal Lifestyle mall in Mulund, Mumbai. The mall is planning to shut down as the developer plans a new project. Photo: Hindustan Times

Several distressed malls across the country are up for sale or being considered for restructuring, indicating a consolidation in India’s over-supplied mall market.

Fourteen malls with a combined space of 3.5-4.5 million sq. ft are likely to withdraw from the market in the next 12 months, said a 30 July note by real estate consultancy Jones Lang LaSalle (JLL).

“These (14) malls are already witnessing high vacancies and though owners and developers have tried out different things to revive the malls’ business, it is evident that they didn’t work out and these malls don’t have a future," Ashutosh Limaye, national director (research) at JLL India, said over the phone.

At one mall, the owner even started tutorial classes to attract students, but failed to improve walk-ins, says Limaye. He didn’t disclose the names of the malls.

Mall consultants, who broker deals between developers and potential buyers, are busy negotiating.

A Mumbai-based consultant is running mandates for multiple properties, ranging from shopping centres to large space malls in Noida, Indore, Ahmedabad and Mumbai, among others.

“Owners have realized that it isn’t easy running a mall—it requires specialization," says Susil Dungarwal, head at Beyond Squarefeet, a Mumbai-based mall management company. He estimates that asset sales worth 7,000-8,000 crore are likely.

India’s mall story hasn’t been a very promising one, except for a few developments.

In the early 2000s, real estate developers rushed to open large shopping centres in metros without any real expertise in retail. Years later, hobbled by poor planning, wrong locations and low footfalls, many of them are struggling.

Even though malls are expected to benefit from growth in the retail market, expected to almost double to $1 trillion by 2020 from $600 billion in 2015, according to a February report by the Boston Consulting Group, the supply of good malls has been poor.

India today has more than 450 malls, according to estimates by real estate experts.

Mall supply peaked at 14 million sq. ft in 2011-12. It plummeted in 2014 with a net addition of 2 million sq. ft at a time when large foreign retailers such as Swedish fashion label H&M and American retailer GAP Inc. are seeking to add stores.

In Mumbai, an over-supplied mall market, closures are visible.

In suburban Bhandup, three-year-old Neptune Mall, developed by the Neptune Group, has an over-supply in the periphery: three other malls within a 7km radius.

Mall owners are devising ways to rescue the space, which is seeing closure of anchor tenants such as Central in Neptune.

“We are interacting with consultants and trying to revive the mall by partnering with another developer or maybe a good operator, but it’s quite uncertain," said Nayan Bheda, chairman, Neptune Group, adding that most of the brands are bleeding, though the mall is still open.

In nearby Mulund, the Nirmal Lifestyle mall is planning to shutter operations as the developer plans a new project.

“We are planning a new mall, in a new format that will cater to today’s shoppers, right across the existing mall," said managing director Dharmesh Jain, adding that the mall gradually became unviable.

For retailers, such situations translate to more risk for business. Take footwear and apparel retailer Woodland, which has faced such situations over the years. “Malls are clearly more prone to risk," said Harkirat Singh, managing director, at the New Delhi-based retailer that has 500 stores, a fourth of which are in malls.

“It takes time to get the foot-falls going as opposed to, say, a high-street," Singh added.

While retailers can only shut shop and move on, opportunities exist for other, more successful mall developers.

“We are not averse to such a deal, albeit it makes sense from a design and valuation point of view," Vishal Mirchandani, chief executive (retail and commercial services) at Bengaluru-based Brigade Enterprises Ltd, which operates Orion, one of the better-run malls.

Even as newer malls are expected to come up by 2016, making way for retailers to expand, sick malls are perennial, suggests Woodland’s Singh.

“Malls only have a certain life span, there will always be a new mall in the vicinity that will take away business from an existing one," he said.

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Suneera Tandon
Suneera Tandon is a New Delhi based reporter covering consumer goods for Mint. Suneera reports on fast moving consumer goods makers, retailers as well as other consumer-facing businesses such as restaurants and malls. She is deeply interested in what consumers across urban and rural India buy, wear and eat. Suneera holds a masters degree in English Literature from the University of Delhi.
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Published: 03 Aug 2015, 12:56 AM IST
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