Track2Realty: Top eight major cities witnessed a total mall supply of 2.94 million square feet (msf) (3 malls) during the first half of 2013 with over 64% (13 malls) of the total expected supply deferred, says a report by Cushman & Wakefield.
The highest deferment of supply was recorded in NCR, Pune Hyderabad, followed by Bangalore & Kolkata where none of the planned supply entered the market. NCR witnessed the deferment of 5 malls, followed by 2 malls in Pune, Hyderabad, Chennai and 1 mall each in Kolkata and Bangalore.
Inspite of a healthy retail leasing activity and increase in number of enquiries in both main streets and malls, developers have significantly deferred commencing construction. This is mainly because malls are subject to higher compliance i.e. safety and security concerns from municipalities in most cities due to higher foot fall, parking requirements, multiplexes and food courts. Further, malls take more time for finishing as there is lot of common area finishes require high capital cost, which depending upon financial soundness of the developer may be difficult to come by through internal accruals etc.
Total of 3 new malls started operations inQ2 2013 – one in Mumbai (Viviana) and two in Chennai (Phoenix Market City & Prestige Mall (Forum)). These malls became operational with more than 95% occupancy level. This trend of mall deferment across can be attributed to a number of reasons.
Primarily, developers are facing liquidity issues to complete the construction of their malls. Additionally, though retailers are optimistic of their growth plans in India, they are cautious in opening new stores and are carrying out comprehensive due diligences to understand their market before making commitments.
On the other hand, developers are not in a position to launch their malls until they get sizeable occupancy that can support the operations of the mall. This is especially true in the case of large-sized malls, which need longer time frames to market themselves and ensure that they have attained the critical mass in occupancy before launching .
Sanjay Dutt, Executive Managing Director, South Asia Cushman & Wakefield said, “There is considerable demand for quality retail spaces in both shopping malls as well as main streets in most cities. However retailers, though optimistic about their expansion plans are showing caution prior to launching new stores, which has resulted in the deferment of malls where occupancies have been low and where developers have faced some liquidity issues. Malls now prefer to open with near full occupancy, as was seen in some recent cases. Despite a few malls being deferred during H1 2013, some new malls may be opened before the end of the year making way for more quality options for international and national retailers.”
Q2 2013 RETAIL RENTAL TRENDS
According to C&W, mall rentals increased by 9-18% across some select micro markets of Vashi (Mumbai), Chennai – Peripheral (South), South Delhi and Sal Lake (Kolkata) and South Kolkata. This was primarily driven by churn and new leasing activity at higher rentals in these locations as demand remained healthy. NTR Gardens in Hyderabad recorded a 17% negative rental movement due to lack of demand from retailers.
Slowdown in retail activity coupled with paucity of quality retail space led to 13% dip in mall rentals at Banerghatta Road (Bengaluru) over the last quarter. In Pune, micro markets such as Koregaon Park, Camp and Hadapsar saw mall rentals dip by 17%, 12% and 8% respectively owing to dwindling demand and availability of vacant spaces. Ongoing infrastructure work in Western Suburbs of Chennai caused footfalls to reduce and further resulted in a negative 4% rental growth in this quarter.
Hyderabad dominated the main street retail scene in this quarter
Hyderabad’s AS Rao Nagar main street recorded maximum rise in rentals (33%), followed by main streets of Punjagutta(29%), Ameerpet(19%) and Kukatpally (17%) due to healthy demand and paucity of quality retail premises. This trend was also witnessed in the main street micro markets of Camac Street and Park Street in Kolkata, where a 13% quarterly rental appreciation each was recorded. NCR (Rajouri Graden) and Chennai (Usman Road – North) followed the rental escalation trend as demand remained healthy, mainly from apparel brands.
Owing to unavailability of quality spaces combined with parking issues and traffic congestion in Koregaon Park and MG Road in Pune, the rentals depicted a negative trend and fell by 10% and 3% over the quarter respectively. Select main streets in Chennai – Anna Nagar 2nd Avenue and Adyar Main Road saw a downward rental movement of 6-7% as ongoing infrastructure activity affected footfalls adversely and led to negative bias amongst new retailers for these areas.
Vittal Mallaya main street in Bengaluru witnessed a rental correction of about 5%. Banjara Hills, Abids and Raj Bhavan Road/Somajiguda in Hyderabad witnessed sharp fall in rentals ranging between 7-14% due to lack of quality retail space and modifications in road dividers and change in medians respectively, which affected customer access.
Sanjay Dutt, Executive Managing Director, Cushman & Wakefield commented, “Healthy demand in main streets continued in most cities with transactions mostly in apparel, jewellery and F&B segments. Some main streets did experience a decrease in footfalls and slow retail activity due to ongoing infrastructure developments and traffic congestions. Regular churning and new leasing activity will however, continue to boost the retail rentals in both shopping malls and main streets.”
Bengaluru’s retail market witnessed a stable rental trend for most malls and main streets this quarter. However, select locations like Vittal Mallaya Road main street and Bannerghatta Road mall micro market registered a drop in rentals. Quarter on quarter (q-o-q) rental drop of 13% was noted in Bannerghatta Road mall micro market due to lower demand from retailers and a rental correction of 5% was registered in Vittal Mallaya main street over the last quarter. Main streets like MG Road, Brigade Road, Commercial Street, Kormangala 80 Feet Road and New BEL Road continued to enjoy persistent demand from both domestic as well as international retailers belonging to apparel, accessories and food and beverages (F&B) categories.
Addition of new brands from apparel and F&B categories was noted in prominent malls located in Kormangala and Magrath Road due to an ongoing churn. The overall mall vacancy across the city was noted in similar ranges close to 12%. In the next quarter, Vittal Mallaya Road and Indiranagar 100 Feet Road may witness a dip in rentals due to lack of smaller ticket size retail options.
Chennai continued to witness the infusion of new mall supply in this quarter too and added 700,000 sf in Vadapalani. The new mall opened with almost 95% occupancy levels and the absorption levels in the city also increased; thereby reducing the overall mall vacancy levels marginally by 0.30 percentage points over the last quarter to 6% in this quarter.
While the ongoing construction work for metro rail led to a q-o-q decrease of 4% for malls in the western part of the city, demand for quality spaces caused mall rental appreciation of about 12.5% over the last quarter in the southern parts of Chennai.
Paucity of quality retail spaces and increasing demand from ethnic wear and jewellery retailers caused mall rentals to rise up by 8.3% over the last quarter in Usman Road – North. Anna Nagar 2nd Avenue and Adyar both saw main street rentals decreasing by 6-7% from the previous quarter due to the ongoing infrastructure projects and cautious business sentiments from retailers.
However, stable rentals are expected to continue in most malls and main streets with the exception of Pondy Bazar where demand continues to be high due to its central location and limited vacancy.
The Hyderabad retail market witnessed a mixed trend in rentals in the second quarter of 2013. A.S.Rao Nagar main street registered the highest quarter-on-quarter increase of around 33.3% in rentals owing to limited availability of retail space and robust demand from retailers belonging to various categories like apparel, electronics, hypermarkets and convenience stores.
Main streets like Himaytnagar, Kukatpally and Punjagutta registered a quarterly increase of 29.2%, 16.7% and 8.0% in rentals respectively due to healthy demand. Significant demand from apparel and jewellery retailers coupled with limited supply contributed to the rental appreciation in Himayatnagar and Punjagutta.
Strong demand from mom and pop retailers led to 19.0% rise in rentals in Ameerpet. On the other hand, select main streets like Raj Bhavan Road/Somajiguda witnessed a quarterly rental drop of 14.3% due to accessibility issues caused by the modifications of road dividers and medians. Huge vacancy created by the exit of a hypermarket and few convenience stores led to a rental dip of 12.0% in Abids.
Banjara Hills saw a 7.1% dip in rentals due to limited demand for the relatively poor quality spaces available in older properties. Shopping malls in all the locations in Hyderabad registered a stable rental trend, except for NTR Gardens, which registered q-o-q rental reduction of 16.7% owing to lower demand from retailers. Going forward, rental values for both malls and main streets are expected to register a stable trend and the city is anticipated to witness addition of around 425,000 sf new mall space in the next quarter.
Kolkata witnessed a healthy demand mix for retail spaces from both domestic and international brands in the second quarter. The leasing activity, however, was majorly driven by domestic brands from jewellery and apparel segments followed by international F&B brands. The quarter also continued to witness queries from F&B and premium lifestyle international brands for quality mall spaces.
The overall vacancy levels of malls in Kolkata remained unchanged at 4.5% as the new space take up was negated by few stores that discontinued their operations due to high rentals and low sales revenues. Although rentals remained unchanged in most main street locations, some locations such as Park Street and Camac Street witnessed 12.5% appreciation in rentals due to consistent demand coupled with lack of quality retail spaces.
Also, shopping malls in Salt Lake and South Kolkata witnessed rental increase of about 11% each as compared to the previous quarter due to limited quality retail space in these malls. Kolkata is expected to see its first luxury shopping mall, spread across an area of 438,000 sf in South Central location, towards the end of the next quarter. Rentals are expected to appreciate in malls in Salt Lake and Elgin Road due to steady demand from retailers and churn as well because renewals are expected to happen at higher rents.
Main-street locations in Mumbai locations like Colaba and Borivali LT Road witnessed healthy enquiries, especially from the F&B segment during this quarter. Limited transaction activity resulted in stable rentals across all main streets, except Lokhandwala-Andheri where higher demand resulted in a 3% q-o-q rental appreciation.
Limited availability of quality retail space coupled with higher demand for retail space in malls at Lower Parel and Vashi resulted in mall rentals appreciating by 4% and 17.6% respectively over the last quarter. Despite the low availability, limited churn resulted in stable rentals across all mall locations in the city.
A new shopping mall admeasuring 940,000 sf became operational in Thane during this quarter with almost 98% occupancy . The overall mall vacancy in Mumbai declined marginally to 15.1% at the end of the second quarter. Mall rentals in Lower Parel may witness an increase in the next quarter due to low vacany levels and healthy demand scenario. Main street rentals on Linking Road are under pressure due to high vacancy while rents in Borivali and Vashi may appreciate due to increased demand from retailers for these suburban locations.
National Capital Region (NCR) witnessed an increase in enquiries for established shopping malls in South Delhi due to the relaxation of Foreign Direct Investment (FDI) norms in single brand retail. Whilst some retailers vacated spaces in select South Delhi malls due to change in their location strategy, new retailers signed up leases at higher rental values resulting in a q-o-q appreciation of about 9% in this micro market.
Rentals across shopping malls in other micro markets remained constant over the quarter. The second quarter witnessed no new mall supply and due to additional leasing activity in malls located in micro markets like South Delhi, Gurgaon and West Delhi, the mall vacancy rate declined by 1.3% over the previous quarter and was noted at 14.4%.
Most of the main streets witnessed consistent rental values in this quarter except for Rajouri Garden where a quarterly rental appreciation of 5.6% was witnessed due to an increase in leasing activity by domestic retailers. During the quarter, select retailers in apparel and footwear category also expanded their presence on main streets like Khan Market and Connaught Place (Inner Circle). Select malls in South Delhi are expected to witness an upward trend in rentals in wake of the continued demand from premium international brands.
Mall rentals in most micro-markets of Pune witnessed a correction between 7-17% due to limited demand, decreasing footfalls and retailers focusing mainly on new and well-maintained malls. However, rentals remained stable in Nagar Road due to presence of quality shopping malls in this micro-market. Overall mall vacancy increased by 1.4 percentage points to 26.7% in this quarter.
An upcoming shopping mall expected to be completed during this quarter has got deferred due to low demand levels and may take some more time to become operational. In wake of weak demand conditions, many more malls are now considering a shift to revenue sharing based models to attract more retailers who continue to be biased towards main street locations in the city.
Increasing parking and traffic woes combined with limited availability of quality spaces caused a decline in main street rentals in Koregaon Park and MG Road. Lack of quality options in Aundh resulted in rentals appreciating marginally by 3%. The rentals for main streets are expected to remain stable with a slight upward bias in J.M. Road and Aundh due to lack of quality spaces and healthy demand. A reduction in overall mall vacancy can be anticipated as no new shopping malls are expected to open in the next quarter.
In Ahmedabad mall and main street rentals remained stable due to low transaction activity. Limited options for quality retail spaces in C.G. Road, Law Garden, Prahladnagar and Satellite Road main streets have resulted in low transaction activity during the quarter. However, enquiries for main street retail spaces remained healthy, especially from the F&B and apparel segments. Retailers are now exploring possible retail space options on the S.G.Highway, propelled by the easy access to residential hotspots.
Retailers continue to prefer main street locations for expanding their operations. Good quality malls have been operating at lower vacancy levels, thus retailers are left with fewer quality options to choose from. This has also resulted in lower transactions, keeping the mall rentals stable across all micro-markets.
The city’s overall mall vacancy declined by 3.8 percentage points and was recorded at 29.2% at the end of the quarter with a few retailers taking up space in malls along the S.G. Highway. New transactions at main street locations like C.G. Road, Prahladnagar and Law Garden are expected to take place at marginally higher rentals due to healthy demand and low supply. Mall rentals at S.G. Highway are expected to witness downward pressure due to high availability of retail space.
