MALL VACANCIES RISE BY 5-15 PERCENT
Avinash Nair & Yashpal Parmar, Ahmedabad
The Economic Times (Bangalore edition)
As mall developers rework their strategies to sustain cash-flows, mall vacancies in major retail destinations like Delhi, Mumbai, Pune and Hyderabad rose between 5 and 15 percent in June 2009. During the last six months, developers juggling with various revenue models have discovered to their relief that certain “flexible” revenue models like ‘minimum guarantee’ and ‘revenue sharing’ have picked up steam.
“Riding on 30-40 percent annual rental growth in 2006 & 2007, and strengthening consumerism, developers in India planned and began constructing malls in dozens. A rental correction of 30-35 percent from the peak in 2008 was not able to entice retailers, leading to several malls becoming operational in the first six months of 2009 at high vacancies,” says Abhishek Kiran Gupta, head - research, of a global real-estate consultancy firm. According to Gupta, the mall vacancies have continued to increase between 5-15 percent in retail hotspots like Delhi, Mumbai, Pune, Bangalore and Hyderabad.
In retail hotspots like Ahmedabad, the higher mall vacancies can be attributed to the geographical distribution of malls. “Geographical distribution of malls in Ahmedabad is poor, with the western part of the city having a majority of the organized mall space. Had the developers spread their retail developments towards other residential catchments as well, the risk of higher vacancy would have somewhat diminished,” Gupta said. “While the existing high vacancies in malls might give an indication of oversupply of retail space in the city, a dearth of ‘quality retail space’ in Ahmedabad continues. Developers would have realised that retailing needs more quality space than quantity space and as a sector, works differently than other asset classes,” he added.
At a time when mall vacancies continued to rise, the mall developers juggling with various revenue formats to sustain adequate cash-flows found that flexible revenue models like minimum guarantee and revenue sharing have become popular. “Select malls in the country like Inorbit and Forum Value Mall in Bangalore, along with Select City Walk in Delhi have shifted to a combination of minimum guarantee and revenue sharing models, accompanied by a performance clause in the agreement. Depending on the format of the store and the tenant, the revenue sharing terms are decided,” Gupta said.
“Such flexible revenue models are highly acceptable to the retailers as the risk is shared between the real estate owner and the retailer. Also, it makes the developer more accountable for generating footfalls and conversion rates in the mall. For the developer, it reduces the risk of high vacancy in the mall while keeping a probability of better revenues in the future,” he added.
Avinash Nair & Yashpal Parmar, Ahmedabad
The Economic Times (Bangalore edition)
As mall developers rework their strategies to sustain cash-flows, mall vacancies in major retail destinations like Delhi, Mumbai, Pune and Hyderabad rose between 5 and 15 percent in June 2009. During the last six months, developers juggling with various revenue models have discovered to their relief that certain “flexible” revenue models like ‘minimum guarantee’ and ‘revenue sharing’ have picked up steam.
“Riding on 30-40 percent annual rental growth in 2006 & 2007, and strengthening consumerism, developers in India planned and began constructing malls in dozens. A rental correction of 30-35 percent from the peak in 2008 was not able to entice retailers, leading to several malls becoming operational in the first six months of 2009 at high vacancies,” says Abhishek Kiran Gupta, head - research, of a global real-estate consultancy firm. According to Gupta, the mall vacancies have continued to increase between 5-15 percent in retail hotspots like Delhi, Mumbai, Pune, Bangalore and Hyderabad.
In retail hotspots like Ahmedabad, the higher mall vacancies can be attributed to the geographical distribution of malls. “Geographical distribution of malls in Ahmedabad is poor, with the western part of the city having a majority of the organized mall space. Had the developers spread their retail developments towards other residential catchments as well, the risk of higher vacancy would have somewhat diminished,” Gupta said. “While the existing high vacancies in malls might give an indication of oversupply of retail space in the city, a dearth of ‘quality retail space’ in Ahmedabad continues. Developers would have realised that retailing needs more quality space than quantity space and as a sector, works differently than other asset classes,” he added.
At a time when mall vacancies continued to rise, the mall developers juggling with various revenue formats to sustain adequate cash-flows found that flexible revenue models like minimum guarantee and revenue sharing have become popular. “Select malls in the country like Inorbit and Forum Value Mall in Bangalore, along with Select City Walk in Delhi have shifted to a combination of minimum guarantee and revenue sharing models, accompanied by a performance clause in the agreement. Depending on the format of the store and the tenant, the revenue sharing terms are decided,” Gupta said.
“Such flexible revenue models are highly acceptable to the retailers as the risk is shared between the real estate owner and the retailer. Also, it makes the developer more accountable for generating footfalls and conversion rates in the mall. For the developer, it reduces the risk of high vacancy in the mall while keeping a probability of better revenues in the future,” he added.
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