Mumbai, December 17, 2013: Retail mall space has recorded an increase of 39% in fresh mall space supply in 2013 over the last year despite deferment of 18 malls in the year. This was revealed in the latest estimation by leading real estate services provider Cushman & Wakefield. The total estimated fresh supply of retail mall space was recorded at 4.5 million square feet (msf) in top eight cities of India. Of the total supply, Chennai saw the highest supply of 2 msf followed by Mumbai (900,000 sf), Pune (700,000 sf) and Kolkata (500,000 sf). National Capital Region (NCR) Bengaluru and Ahmedabad did not see any new addition of mall spaces for the entire year in 2013.
Vacancy in the mean time has seen a reduction of 2% over last year on account of increased leasing activities in the freshly launched malls, most of which started with high percentage of occupancy. Only Hyderabad stood out as an exception to record an increase of 7% in vacancy while Bengaluru and Ahmedabad recorded the highest and similar reduction in mall vacancy at 4%. The improvement in the vacancy levels has been the result of increased leasing activities especially in the recently launched malls. The fresh mall spaces that have started operations in 2013 have witnessed an average occupancy of over 94%. Most of these malls have demonstrated strong fundamentals of being located in appropriate locations from catchment perspective, offering retailers and customers right retailing environment giving retailers the confidence in starting/ expanding in these malls. Hyderabad was the only location to witness the start of a mall with a lower than average occupancy of 70%, despite it being the first mall in over three years, on account of poor market sentiments due to the recent political deadlock.
Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield said, “Retail markets have started to show signs of maturity with developers taking interest in creating value out of their projects for all stake holders. Developers are now consciously creating shopping malls that are more suited to the requirements of the retailers as well as consumers. As a result new malls have opened with high occupancy levels with exception of few. Many developers have also deferred their mall projects to align them to their customer requirements to ensure that their future projects are successful. As in the case of hospitality, shopping centres also have a long gestation period therefore investors are interested only in those projects where the fundamentals are strong and can provide sustainable returns and profitability over a long period of time.”
Sanjay further said “There would be a focus on creating USP’s for future developments of malls either through location and tenant mix or by creating speciality malls such as luxury retail spaces. Understanding that malls are now more a destination than pure retailing locations, developers are looking at providing holistic family based entertainment opportunities within their malls to both increase their footfalls and conversions for their tenants.”
An estimated 9.8 msf of mall spaces have been deferred in 2013 for completion in later times. Of the total a maximum of 7.3 msf of fresh mall supply was deferred in NCR alone amounting to approximately 10 new malls that were expected to get ready for this year but have now been postponed for the future. Pune saw a deferment of 1.1 msf while 900,000 square feet (sf) of mall space was delayed in Bengaluru in 2013. One mall each in Chennai (220,000 sf) and Hyderabad (130,000 sf) have also been delayed. Most of these have been on account of funding issues which have led many developers to slower the pace of construction.
Main streets have seen a mixed trend in rental changes over the last few years with some micro markets such as AS Rao Nagar (33%) and Punjagutta (29%) have recorded a substantial increase in rentals due to the limited supply and significant demand from the retailers. Most established main street micro markets including Usman Road in Chennai (27%), Park Street in Kolkata (25%), Connaught Place in NCR (17%) have recorded an increase in rentals on account of high existing demand with no fresh supply or churn in these locations. Khan Market in NCR was noted as the most expensive main street in the country but did not record any change in rentals in the last one year.
Some key micro market which recorded decline in rentals with Raj Bhavan Road recording the sharpest decline of 14% y-o-y in December due to accessibility issues. Linking Road in Mumbai recorded a decline of 12% over the last year due to price correction. Rentals in Pune’s Koregaon Park have declined by 10% due to limited demand from retailers.
CITY WISE – RETAIL MARKET ANALYSIS
Ahmedabad witnessed no new mall supply during the year because of which the mall vacancies in the city have shown a steady decline of about 4.5 percentage points during the year. This decline in vacancies was primarily due to mall space leasing in mall micro-markets of Vastrapur and S.G. Highway. Despite renewed activities, overall mall vacancies have been high in the city at approximately 29%. Mall rentals across the city have remained unchanged during the year. Despite the limited availabilities in main streets like C.G. Road, Law Garden, Prahladnagar and Satellite Road, the low transaction activity due to limited demand from retailers has kept rentals stable during the year. With shoppers preferring main streets over malls, retailers have followed suit and have shown higher preference for main street locations for expanding operations.
With no new mall supply and vacancy reducing by another 4 percentage points over last year, the overall activities in the mall space has seen a rise. However, that has not seen a corresponding reflection in the rental values of malls. Malls in locations like Mysore Road, Rajarajeshwari Nagar and Banerghatta Road saw a y-o-y dip in rentals in the range of 5-20% due to poor connectivity in wake of metro construction work, which impacted the businesses’ revenues making landlords offer competitive rentals in the nearby main streets. Malls in the micro-market of Malleshwaram recorded a rise of 12% owing to robust demand from retailers. Elsewhere, rentals across most malls remained stable over the year. Most main streets in the city recorded stable rentals. Select main street locations like Commercial Street and Vittal Mallya Road witnessed a drop in the range of 3-5% due to non-availability of quality spaces.
In 2013, four new retail malls totalling to 2.01msf of fresh supply started operations. Amongst the new shopping malls which opened in Chennai in 2013, two malls at Velachery and Vadapalani are functioning at almost full occupancy levels. Thus, the overall mall vacancy level during Q4 2013 was recorded at 6.5%, registering a decline of 2.2 percentage points on a y-o-y basis. Categories like apparels, accessories and cosmetics were major contributors to absorption of shopping mall space during 2013. In the submarket of Chennai – South, y-o-y increase of 12.5% was seen in mall rentals as construction of good quality malls led to a rental rise in this area in the last one year. While Chennai- Suburbs witnessed a rental decline of 9% for shopping malls on yearly basis due to lower footfalls in wake of the ongoing metro work, mall rentals dipped by nearly 7% in Chennai CBD due to a variety of factors like increasing competition as well as ongoing metro work in front of some shopping malls in CBD.
Hyderabad saw the addition of a new mall in Kukatpally in 2013 that increased the mall stock of the city by 430,000 sf. This was also the first mall in a period of three years to see the light of the day and would have been eagerly awaited by the retailers looking for quality space in the city. However, due to poor political conditions and retailers’ confidence eroding, unlike expected the mall started operations with 30% vacancy pushing the total vacancy of the up by 7%. Almost all malls in the city registered a stable rental trend during 2013, other than those located in NTR Gardens, which witnessed a 17% dip in rentals due to lower demand from retailers. Stable demand and excess supply in prime main streets like Jubilee Hills and Banjara Hills have kept the rentals stable over the year. Thus, Hyderabad remained an affordable destination for retailers compared to other Tier I cities. Although, on a whole most main streets have recorded stable rentals, Panjagutta witnessed an increase of 29% on y-o-y basis due to lack of quality retail spaces.
In 2013, Kolkata witnessed total mall supply of around 500,000 sf recording an increase of over 156% compared to last year. Kolkata’s first mall with dedicated zones for luxury brands has become operational in the south central part of the city during the Q4 2013 with around 97% occupancy levels. As a result of a healthy demand, especially in malls of South Kolkata, churn in Salt Lake and Elgin Road and overall moderate supply, the overall vacancy levels in malls registered decline all through the year and fell to 3.9%, recording a drop of 1.8 percentage points on a yearly basis and also registered appreciation in rentals by 11% at malls in Salt Lake and South Kolkata. Other mall micro markets have witnessed stable rentals during this year.
Mumbai has witnessed just one new mall becoming operational during the year in Thane, admeasuring 940,000 sf. With new supply becoming operational during the year at high occupancy rate coupled with healthy demand for mall space in the western suburbs of Mumbai, the overall vacancy declined marginally by 0.2 pecentage points during the year and was recorded at 15.3% in Q4 2013. With retailers from malls in Mulund moving to better locations in Ghatkopar, vacancies in that mall micro-market have increased resulting in a 20% decline in rental values in 2013. Going forward, low demand from retailers and high vacancy will result in increased pressure on rental values in this micro market. The submarkets of Vashi (17%) and Lokhandwala Andheri (13%) witnessed the highest appreciation in main street rentals for the year 2013 due to high demand for space from retailers. Though Linking Road witnessed a correction of 12% in main street rentals for 2013 due to higher availabilities, availabilities at Linking Road created over the past few quarters have witnessed a steady take-up from the apparel brands at competitive rentals.
No new mall supply during the year along with increased leasing in NCR led to a 1.2 percentage points drop in mall vacancy level which was recorded at 13.6% in Q4 2013. Demand was balanced with both main streets and malls witnessing retailer interest.. Re-sizing and relocation of retailing stores was witnessed with a number of national and international brands taking up larger or smaller spaces according to their brand strategy and availabilities. Except Ghaziabad and West Delhi, most prominent mall locations witnessed increase of 7-12% in rental values due lack of new mall supply and limited availabilities. The rental values in main streets have strengthened by 6-15% in select main street locations like Connaught Place, DLF Galleria (Gurgaon) and Rajouri Garden due to persistent demand and limited availability of quality stock.
Out of four malls expected to come into supply, only one mall in Hadapsar admeasuring 700,000 sf became operational in 2013. The mall started operations with its anchor tenants of a big box retailer and a movie multiplex in place whilst the other stores are yet to start their operations in due course. The other three malls were deferred mainly due to construction delays resulting from subdued demand from retailers for certain locations. The mall vacancy level increased and was noted at 26.49% in Q4 2013. Many retailers have shown a preference for main streets over malls due to reasons such as relatively poor quality of the malls, issues with management or location, etc. all of which are affecting their revenues. However, some quality malls on Nagar Road are witnessing high demand from retailers. As a result mall rentals on Nagar Road have remained steady while the rest of the city has witnessed a drop of 12-24% over the last year. F&B retailers and youth-centric brands have displayer higher preference for FC Road leading to a yearly rental appreciation of 9%. Main streets in western areas of Pune (Aundh, Baner) have seen an increase in demand from retailers over the year due to the growth of residential catchment leading to a 6% y-o-y rental appreciation. Main streets like M.G.Road, Koregaon Park and Bund Garden Road have recorded a rental correction of 5-10% in rentals due to increasing competition from other main streets and stable demand.
 National Capital Region (NCR), Mumbai, Bengaluru, Pune, Hyderabad, Ahmedabad, Chennai, Kolkata