Track2Realty: The total fresh mall supply by the end of 2014 is projected to be approximately 14 million square feet (msf) approx. in the top eight cities of India, of which 13.6 msf is still under construction, says a report by Cushman & Wakefield. This is nearly 200% more than the supply received in 2013 which was recorded at almost 4.6 msf. Of the total expected mall supply for the year of 2014 approximately 60% or 8.2 msf of fresh mall supply is expected to be received by National Capital Region (NCR) followed by Bengaluru at 2.86 msf.
However, the total mall supply received in Q1 2014 (January – March, 2014) was merely 22% of the total expected in this quarter, also registering a year – on – year drop of 65% in total mall supply in Q1 2014 over same time last year. Fresh mall supply of 350,000 square feet (sf) became operational, all of which was received by Pune. The rest of the cities saw no new mall development activity.
Sanjay Dutt, Executive Managing Director- South Asia Cushman & Wakefield India said, “There has been a state of marginal slowdown in development activities across the main cities. Developers are cautions in entering into new locations thus no new project is created or even announced before a thorough study of the potential of the location. With the Retail FDI in place, developers are expecting demand from foreign brands to start pointing northwards, which puts added pressure for them to create conducive shopping environment.”
“Even while demand for retail space has been good, there is an obvious concern of creating the right product and having the right tenant mix. The developers are keen to explore mixed use developments where shopping centre or limited organized retail and or hotel could be one of the other components in addition to residential development, which ensures cash flow, addresses long term value enhancement and better returns. Retailers are also facing challenges overall in terms of sales and require a lot of attention to detail to achieve sales. Right merchandise at right locations, centres with right promotions and rapidly changing market conditions is key to the success. Lot of attention is also being given to e-retailing. Once the stability of a new government is in place, activities are expected to pick up pace,” Sanjay added.
Q1 2014 witnessed deferment of 4 malls amounting up to nearly 1.26 million square feet (msf) with Bengaluru witnessing deferment of 2 malls amounting to over 500,000 sf. Meanwhile, Pune witnessed deferment of 1 mall of 430,000 sf of retail space, Hyderabad saw deferment of 1 mall of 200,000 sf of space and Kolkata noted deferment of 120,000 sf of retail space (remaining supply of a mall which got partially operational during Q4 2013).
Healthy leasing activities and enquiries have resulted in overall vacancy levels in malls to be maintained at 14.5% on Q1 2014. Hyderabad witnessed the highest quarter on quarter (q-o-q) drop of close to 1.1 percentage points in the overall mall vacancy. Buoyant demand from apparels, footwear, food & beverages (F&B) segment retailers led to this drop.
Further, Bengaluru and Kolkata recorded drop of 0.9 and 0.3 percentage points respectively due to sustained demand for quality mall spaces from apparels, footwear and F&B brands. Ahmedabad and Pune were the only two cities witnessing rise in vacancy levels of 1.3 and 1 percentage point respectively. While the new supply pushed up the vacancy levels for Pune, relocation of brands from malls located at S.G. Highway in Ahmedabad contributed to this mall vacancy rise.
“With multi brand retailers like UK based Tesco getting approvals from Foreign Investment Promotion Board and RBI allowing foreign retail investment in tax free Rupee bonds, the retail sector is sure to see a new growth trajectory. Developers now need to develop deep understanding of retail space requirements of international brands and serve them accordingly in times to come,” said Sanjay.
MALL SPACE RENTALS
According to C&W, mall rentals were noticed to be steady across most cities except Chennai, Mumbai and Pune. Owing to Hadapsar (Pune) picking up as a shopping destination, malls located in this location recorded a q-o-q rental uptrend of 10%. High demand for quality retail spaces led to q-o-q rental increase of 5% in Chennai Suburban (West).
Dearth of quality mall space availability coupled with high demand led to 4% rise in mall rentals at Lower Parel (Mumbai) over the last quarter. On the other hand, weakening of trading density in Bund Garden/Koregaon park (Pune) and Camp (Pune) led to q-o-q mall rental drop of 9% and 3% respectively. High vacancy levels led to correction of mall rentals in Mulund (Mumbai) resulting in q-o-q drop of 5%.
HIGH STREET RENTALS
Khadar Nawaz Khan Road (Chennai) witnessed highest q-o-q appreciation in main street rentals (5%) owing to its increasing prominence as shopping destination. MG Road (Pune) recorded over 3% q-o-q rise in main street rentals owing to limited quality retail spaces.
Further, Aundh (Pune) registered a rise of nearly 3% q-o-q in rentals due to high preference by brands owing to the strong residential catchment in proximity. Vittal Mallaya Road main street witnessed the highest quarterly rental drop of 7% and main streets like Usman Road-North (Chennai), Koregaon Park (Pune), and Velachery (Chennai) noted a q-o-q drop of 4% each in wake of weak of trading densities in these locations.
BENGALURU
Continuing with the trend witnessed in previous year, the first quarter of 2014 observed absence of any new mall supply in Bengaluru. This was pre-dominantly due to 510,000 sf of supply getting delayed to the second quarter of the year owing to slower pace of construction activities in these malls. Healthy demand from retailers belonging to apparels, footwear and F&B categories led to a q-o-q dip of around 1 percentage point in the mall vacancy and was noted at 7.5% approximately. Rentals for malls across locations remained stable this quarter.
Further, upcoming malls in Northern locations like Thanisandra Road, Tumkur Road witnessed buoyant demand from brands across categories due to limited availability of quality space in these micro-markets. Following a similar trend as malls, rentals continued to remain at the same level for most main streets as compared to the previous quarter. Vittal Mallaya Road as an exception recorded a q-o-q drop of 7% in the rental value due to weakening of trading densities in the location.
Established main streets like Brigade Road, Commercial Street, Kormangala 80 Feet Road and Jayanagar 4th Main continued enjoying interest from apparels, footwear, electronics and F&B retailers. Although both malls and main streets are anticipated to witness rental levels in similar ranges, non-availability of ideal sized floor may put some pressure on prevailing rentals in Indiranagar 100 Feet Road and MG Road.
CHENNAI
Since Chennai witnessed no new mall supply during this quarter, the overall mall vacancy level registered a q-o-q dip of 0.23 percentage point and was noted at 6% during Q1 2014. This was mainly due to the healthy demand from domestic apparel, footwear and F&B retailers for select shopping malls in Chennai CBD and Chennai South locations. With the advent of quality shopping malls in Chennai Western and Chennai South since last year, the rentals of these malls have shown a 5% and 2% quarterly uptick respectively.
However, mall rentals in other micro markets, remained stable. Cautious market sentiments amongst retailers prevented main street rentals from witnessing any change and most main streets recorded rentals at par with the last quarter. However, Khadar Nawaz Khan Road witnessed a 5% q-o-q increase owing to its central location and good residential catchment. Retailers in Velachery and Usman Road-North main streets preferred to be located in quality retail spaces in Chennai South and Chennai CBD respectively, due to which the main street rentals recorded a q-o-q dip of 4% each.
HYDERABAD
Hyderabad witnessed no new mall supply in the first quarter of 2014 due to the deferment of a mall, admeasuring 200,000 sf. The timeline for this mall got spilled over to the next quarter owing to delay in approvals. Malls in Kukatpally witnessed healthy transaction activity from apparels, footwear and F&B brands which resulted in a q-o-q drop of 0.6 percentage points in the mall vacancy during the quarter. Further, malls located in Banjara Hills and Madhapur witnessed healthy enquiries from apparels, telecom, accessories and F&B retailers during the quarter.
Established main streets like Jubilee Hills Road No. 36 and A.S.Rao Nagar continued to witness moderate demand from domestic retailers belonging to apparel, sportswear, telecom and F&B categories. Enquiry levels increased in other main streets like Himayathnagar, Punjagutta, Kukatpally and Somajiguda. Rentals across all main streets and malls remained stable in wake of stable supply and demand conditions. Going forward, the city is likely to witness the influx of 700,000 sf of mall space in the next quarter. Enquiries are anticipated to remain healthy for the upcoming locations like Attapur, Uppal, Chandanagar and Nagol.
KOLKATA
During Q1 2014, Kolkata did not witness any mall supply as the anticipated 120,000 sf mall space of an operational mall located in South Kolkata got deferred to the next quarter. Lack of mall supply and healthy leasing activity in select malls led to a further q-o-q 0.3 percentage point drop in overall vacancy level that was recorded at 3.6% this quarter. Malls in central (Elgin Road) and eastern Kolkata (EM Bypass) witnessed healthy leasing activity from retailers belonging to F&B and apparels segments.
Main street locations on the other hand witnessed slow transaction activity despite demand from apparels, accessories and F&B retailers; this was primarily due to lack of quality retail space on main streets. Meanwhile, the rentals remained stable during the quarter for all main streets and malls micro markets in the city.
MUMBAI
Mall rentals at Lower Parel, Mumbai appreciated by 4% q-o-q due to high demand from apparels retailers. However, mall rentals at Mulund declined by 5% during the quarter due to the high vacancy levels. Overall mall vacancy remained stable during the quarter and was recorded at 15.3%. Steady demand for retail space in other suburban locations like Andheri, Malad, Goregaon, Ghatkopar, Thane and Vashi resulted in stable mall rentals this quarter. Meanwhile, enquiry levels from apparels and F&B retailers for mall space in the western suburbs remained high but limited churn resulted in transaction activity remaining low in these malls. Main street rentals continued to remain stable during the quarter across all locations.
Main street locations in Colaba, Andheri-west and Borivali witnessed healthy enquiries primarily from the apparels and F&B segment retailers. A number of apparels and footwear retailers were observed expanding operations in peripheral western locations like Vasai and Virar owing to the growing population and favorable demographics. A number of high end F&B brands were also witnessed scouting for spaces to expand in Bandra-Kurla Complex due to the expansion of corporate companies in the location.
NCR
The retail space demand in the first quarter of 2014 in NCR was mainly driven by apparels, F&B and personal care brands which continued to strengthen their presence in the capital city. Although reasonable transaction activity was witnessed during the quarter, most of it was recorded in the main street locations such as Connaught Place, Khan Market and DLF Galleria. At 13.4%, vacancy level in the malls remained at almost similar level compared to previous quarter.
Amidst mixed market sentiments, rental values maintained a status quo across all main streets and mall submarkets in NCR. The on-going churn in South Delhi malls is expected to strengthen the rental values in the next quarter. Similar to last year, this quarter too did not witness any new supply in mall space. Due to slow construction activity and political uncertainty prevailing in NCR, no new mall space supply is expected in the next quarter as well.
PUNE
In Pune, a mall admeasuring 350,000 sf became operational in Pimpri. This new supply pushed up the mall vacancy level by 1.1 percentage points q-o-q to 27.5%. The mall opened with nearly 60% occupancy after getting delayed by three quarters. The organized retail market witnessed a mixed trend during the quarter with some anchors vacating spaces in select malls and several vanilla retailers taking up space. Malls located in Hadapsar recorded a 10% q-o-q rise in rental values in the current quarter due to healthy leasing in a recently opened mall.
Malls in Bund Garden Road and Camp micro markets however witnessed a q-o-q drop of 9% and 3% respectively due to low demand. The outlook remains positive for malls in the Nagar Road and Hadapsar micro markets with consistent demand from lifestyle and F&B brands. The preference for main streets continued with Aundh, M.G.Road and F.C. Road witnessing a quarterly rental appreciation of 2-3%. The outlook for main streets across the city remains positive over the next few months with most locations expected to register healthy demand except Koregaon Park which even this quarter recorded a 4% q-o-q rental decline, given the low preference amongst retailers.
AHMEDABAD
Increasing vacancy levels were observed in a few malls along S.G. Highway in Ahmedabad, as some of the brands relocated to other locations. The trend resulted in mall vacancies increasing by 1.3 percentage points to 31.6% at the end of the first quarter. Despite increasing vacancies, the landlords were observed to hold on to the rentals. The mall rentals remained stable across all sub-markets during the quarter.
Main street locations in proximity to commercial office business districts like Prahladnagar and S.G. Highway witnessed healthy enquiries from BFSI and F&B retailers. Meanwhile, select lifestyle and home improvement brands also relocated and expanded their operations in these areas due to the favorable catchment. Availability of quality space remained a concern in mature main street locations like C.G. Road, Law Garden and Satellite Road.
Limited churn resulting in low transaction activity kept rentals stable across all main street locations during the quarter. Going ahead, mall rentals at S.G. Highway are expected to remain under pressure due to high vacancy levels. Rentals at main streets locations like Prahladnagar and S.G. Highway could appreciate due to healthy demand expected from the BFSI and F&B retailers.
