Shops get cheap
ET Realty, June 5, 2009, Page 1
Correction in rentals of retail micro-markets is gaining momentum across the country, with the NCR registering some of the steepest fall
Prabhakar Sinha
Retail real estate across India continues to reel under the current economic pressure, with retailers wary of any expansion plans. Most retail micromarkets, both malls as well as high street, saw a further correction in rental values.
According to a report by global real estate consultancy firm Cushman & Wakefield, Mumbai saw the sharpest decline in rental values for both malls in Goregaon, by 42%, and high streets in Colaba Causeway, by 38%. In the NCR, high street location of Greater Kailash I, M Block, witnessed a 25% decline in rental values while mall rental values in Noida dropped by 17%. Ahmedabad saw a serious downturn in rental values in malls and high street rentals with corrections in the range of 20% to 36% over the last quarter.
As absorption of retail space dwindled, developers have also slowed down the construction of malls. This has resulted in lowering of fresh supply, over initial expectations. The report says a few other developers, who are yet to start construction of previously announced projects, may be reconsidering their retail mall plans. Rajneesh Mahajan, executive director of retail services at Cushman & Wakefield, says, "Mall supply across major cities witnessed a slowdown in response to the slowing retail demand.'' The slowdown in mall construction is expected to temper supply over 2009 and may help in maintaining a healthier supply-to-demand equation going forward, C&W said. The estimated mall supply by end of 2009 is calculated to be 17.66 million sq ft, out of which, approximately 11 million sq ft has been carried forward from 2008.
Expectedly, malls that are nearly ready for possession are facing challenges in attracting retailers. Thus, many developers have now begun to support retailers by reducing the fixed occupancy cost including rentals, as well as offering revenue sharing opportunity with retailers, to promote increase in occupancy, says Mahajan. Most developers are currently refraining from launching new projects and some are resizing their ongoing developments as the vacancy in existing malls is increasing, he adds.
Correction in rentals, however, could attract retailers to expand their businesses, it is believed. Mahajan says even while a correction in rental values is recognized as a potential catalyst for retailers to re-enter, receding enduser demand has severely curtailed uptake of space across most micromarkets. Thus the trend of further correction is likely to continue in short to medium period. Only established retail micro-locations and successful malls are expected to hold steady, largely on account of revenue potential and low vacancy.
In Q1 of 2009, only 1.4 million sq ft of fresh mall supply was added across seven major cities concentrated only in Mumbai and the NCR. NCR witnessed the highest mall supply in the country at 8,00,000 sq ft, with two malls getting operational in this period. However, demand remained under pressure leading to further correction in rental values in malls, in the range of 7-17%, with Noida recording 17%, followed by South Delhi at 11%.
The recent spate of mall development across the NCR coupled with the slowdown in demand has led to this continuous trend of correction in rental values. Increase in malls has impacted the high street rental values, which have seen a downward trend, especially in areas around South Delhi like Greater Kailash's M Block market, which recorded a correction of 25%. Mumbai was the other significant contributor to mall supply with an addition of 3,05,000 sqft in Q1 of 2009. It also recorded the highest mall rental correction, in Goregaon, at 45%.
Established Mall locations like Lower Parel, Malad and Andheri remained stable due to lack of supply, while newer locations like Ghakopar (25%), Mulund (6%) and Vashi (23%) have seen significant correction owing to slowdown in demand and also hectic renegotiations from existing occupants resulting in rental corrections and alternative approaches like revenue sharing with retailers. Bangalore witnessed no new supply, while corrections in high street were in the range of 6-28%. Similarly, other markets like Chennai, Hyderabad, Kolkata, Pune and Ahmedabad also witnessed correction in rentals of retail space.
FOCAL POINT
The slowdown in mall construction is expected to temper supply over 2009 and may help in maintaining a healthier supply-todemand equation going forward Increase in malls has impacted the high street rental values, which have seen a downward trend, especially in areas around South Delhi like Greater Kailash's M Block market.
ET Realty, June 5, 2009, Page 1
Correction in rentals of retail micro-markets is gaining momentum across the country, with the NCR registering some of the steepest fall
Prabhakar Sinha
Retail real estate across India continues to reel under the current economic pressure, with retailers wary of any expansion plans. Most retail micromarkets, both malls as well as high street, saw a further correction in rental values.
According to a report by global real estate consultancy firm Cushman & Wakefield, Mumbai saw the sharpest decline in rental values for both malls in Goregaon, by 42%, and high streets in Colaba Causeway, by 38%. In the NCR, high street location of Greater Kailash I, M Block, witnessed a 25% decline in rental values while mall rental values in Noida dropped by 17%. Ahmedabad saw a serious downturn in rental values in malls and high street rentals with corrections in the range of 20% to 36% over the last quarter.
As absorption of retail space dwindled, developers have also slowed down the construction of malls. This has resulted in lowering of fresh supply, over initial expectations. The report says a few other developers, who are yet to start construction of previously announced projects, may be reconsidering their retail mall plans. Rajneesh Mahajan, executive director of retail services at Cushman & Wakefield, says, "Mall supply across major cities witnessed a slowdown in response to the slowing retail demand.'' The slowdown in mall construction is expected to temper supply over 2009 and may help in maintaining a healthier supply-to-demand equation going forward, C&W said. The estimated mall supply by end of 2009 is calculated to be 17.66 million sq ft, out of which, approximately 11 million sq ft has been carried forward from 2008.
Expectedly, malls that are nearly ready for possession are facing challenges in attracting retailers. Thus, many developers have now begun to support retailers by reducing the fixed occupancy cost including rentals, as well as offering revenue sharing opportunity with retailers, to promote increase in occupancy, says Mahajan. Most developers are currently refraining from launching new projects and some are resizing their ongoing developments as the vacancy in existing malls is increasing, he adds.
Correction in rentals, however, could attract retailers to expand their businesses, it is believed. Mahajan says even while a correction in rental values is recognized as a potential catalyst for retailers to re-enter, receding enduser demand has severely curtailed uptake of space across most micromarkets. Thus the trend of further correction is likely to continue in short to medium period. Only established retail micro-locations and successful malls are expected to hold steady, largely on account of revenue potential and low vacancy.
In Q1 of 2009, only 1.4 million sq ft of fresh mall supply was added across seven major cities concentrated only in Mumbai and the NCR. NCR witnessed the highest mall supply in the country at 8,00,000 sq ft, with two malls getting operational in this period. However, demand remained under pressure leading to further correction in rental values in malls, in the range of 7-17%, with Noida recording 17%, followed by South Delhi at 11%.
The recent spate of mall development across the NCR coupled with the slowdown in demand has led to this continuous trend of correction in rental values. Increase in malls has impacted the high street rental values, which have seen a downward trend, especially in areas around South Delhi like Greater Kailash's M Block market, which recorded a correction of 25%. Mumbai was the other significant contributor to mall supply with an addition of 3,05,000 sqft in Q1 of 2009. It also recorded the highest mall rental correction, in Goregaon, at 45%.
Established Mall locations like Lower Parel, Malad and Andheri remained stable due to lack of supply, while newer locations like Ghakopar (25%), Mulund (6%) and Vashi (23%) have seen significant correction owing to slowdown in demand and also hectic renegotiations from existing occupants resulting in rental corrections and alternative approaches like revenue sharing with retailers. Bangalore witnessed no new supply, while corrections in high street were in the range of 6-28%. Similarly, other markets like Chennai, Hyderabad, Kolkata, Pune and Ahmedabad also witnessed correction in rentals of retail space.
FOCAL POINT
The slowdown in mall construction is expected to temper supply over 2009 and may help in maintaining a healthier supply-todemand equation going forward Increase in malls has impacted the high street rental values, which have seen a downward trend, especially in areas around South Delhi like Greater Kailash's M Block market.
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