As per Cushman & Wakefield’s latest retail report, the first quarter of 2015 witnessed the addition of one shopping mall to the overall mall inventory across the top eight cities* in India. While Q1 2015 witnessed new supply of 200,000 sf in Bengaluru, it is estimated that currently 30.49 msf of mall space is under construction across the top cities projected for completion over phases by end of 2018. Of total estimated ‘under construction’ mall space, 48% i.e. 14.72 msf (spread across 30 malls) is expected to become operational by end of this year with Delhi-NCR (11 malls) and Bengaluru (7 malls) witnessing the highest concentration of new mall spaces.
Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield, “The retail market is expected to see steady growth over the next few quarters albeit at a slower pace. Given that retail space takes a significant time to get developed and subsequently leased may be dissuading developers from taking up extensive projects, which is why increasing number of mall space are deferred over a period of time. Restructuring of debt and reassessment of development plans are rife with developers who have previously announced their retail space plans, thereby shrouding the future of many expected mall space in doubt. However, for investors, this scenario may actually present a good opportunity to invest and build a large retail portfolio for themselves.”
While limited fresh mall space entered the market in the first quarter, activities saw an increase in mall vacancy by 0.40% points over the previous quarter to be recorded at 14.70%. With the exception of Mumbai and Ahmedabad, all markets recorded a decline in vacancy rates. Despite the lack of any new supply, mall vacancy rose by nearly 1.2-1.6 percentage points in Ahmedabad and Mumbai due to exits by retailers in some micro markets. In Pune, mall vacancy dropped by 2.3 percentage points as leasing remained healthy and quality spaces on main streets remained limited.
Two planned mall space with a total of 500,000 sf, that were expected to come into supply in Q1 2015 were deferred for later in the year. One each in Kolkata (300,000 sf) and Pune (210,000 sf), are now expected to be completed by the third quarter of this year. Whilst shortage of skilled labor, primarily for the final stages, resulted in slower pace of construction for the mall in Kolkata, delays in obtaining licenses delayed the infusion of new supply in Pune.
Mall rentals remained stable across most cities with the exception of some micro markets in Ahmedabad, Mumbai and Pune. In Mumbai, prevalent high demand for malls and absence of new supply in Lower Parel, Vashi and Goregaon led to a 7-9% upswing in mall rentals in these micro markets. In contrast, in Ahmedabad’s Kankaria Lake micro market, poor quality of development kept retailers at bay and led to a 17% decline in rentals. Pune, too, witnessed rental decline in the range of 4-5% for malls in Koregaon Park and Hadapsar due to tenant exits and limited enquiries.