Rising rentals pose survival challenge for branded retailers: JLL report
1 min read 24 Sep 2019, 11:49 AM ISTBrands are paying as high as 40-50% to stay in premium developmentsRising rentals, increasing awareness and aspirations in tier I and tier II cities are throwing opportunities for retailers
PremiumMumbai: Escalating rentals in premium malls have put branded retailers under stress, with many of them relooking store expansion strategy, according to a report by property consultant JLL India.
As per the report Urbanisation, Aspiration - The New Paradigm of India Retail, published Tuesday, rentals in marquee malls have jumped three-fold while premium brands have renewed leases twice the earlier rent in malls where occupancy rate is around 90%.
Brands are now paying as high as 40-50% to stay in premium developments. This has resulted in the tenure of mall leases being shortened, and thus, many brands have been finding it difficult to survive under the burden, the report said.
"With escalating rentals, retailers are focusing on Grade-A mall footprints, nimbly changing strategy to manage the ever-escalating rentals and re-evaluating their store expansion strategy, sizing strategy and store efficiency," said Shubhranshu Pani, managing director (retail services), JLL India in the report.
For instance, lease rentals in malls in Delhi-National Capital Region (NCR) improved by 3% annually in 2018, while those in Mumbai and Bengaluru saw an increase of around 2% and 1%, respectively. In the last two years, Chennai (8.3%), Bengaluru (11.1%) and Hyderabad (11.7%) have recorded lowest mall vacancy rates in the last couple of years, as per the report.
Retailers as part of their cost-cutting measures have started to renegotiate properties where the occupancy costs are high and where the rent-to-revenue ratio is high, the report said.
Pani said retailers are shifting their focus to tier II and III markets where brand presence in minimal. Rising rentals, increasing awareness and aspirations in tier I and tier II cities have thrown up opportunities for retailers and investors to explore these markets.
"As these locations are unexplored and real estate cost here is 30-40% lower than that in metros and tier I markets, retailers are all the more interested, " the report said.
The size of the retail market in tier II and III markets is expected to grow from the current $ 5.7 billion (2018) to $80 billion by 2026, it added.
