High Street back with a vengeance

As consumers grab shopping carts and fill store aisles after a long recession, mall building is back.

About 15 million square feet (msf) of retail space was added last year, which, according to some estimates, is 130% of what was added in 2009 and 2010 put together.

Of these, about nine msf were added in the last six months. And more than 90% came up in bigger cities like Mumbai, Pune, Bangalore and Chennai, finds a study by real estate consultant CB Richards Ellis (CBRE).

Anshuman Magazine, chairman and managing director, CBRE South Asia, said, “On the back of growing urbanisation and an increase in the acceptance of organised retail, retailers have been expanding their operations across the country.”

All is, however, not hunky dory. While rentals are stable in most top cities, they have fallen at a few developments in Pune, Chennai and Hyderabad. Analysts say a huge supply pipeline is depressing rentals.

The recently launched Phoenix Market City at Kurla faced challenges in leasing out multiplex space. Sources said that film exhibitor PVR which turned down the offer citing high rentals, later settled for lower rentals.

With pressure on, the industry feels rental renegotiations are inevitable from the first quarter of the next fiscal. Pankaj Ahuja, proprietor, Rapid Deals, a real estate consultancy, said rate negotiations are not happening in the established malls of Mumbai. “But some developments that are not fully operational are facing challenges. I wouldn’t be surprised if some of them cut rentals.”

The quality of malls is another concern worrying retailers. A recent report by Jones Lang LaSalle India said half of the upcoming malls are not worth a second glance as they are built in wrong locations and would not draw enough footfalls and high spenders.
Ashutosh Limaye, head-research and real estate intelligence service, Jones Lang LaSalle India, said, “We are stuck with the mistakes we made 3-4 years ago — creating too many malls. Few understood that building and running malls is a science, and that factors like catchment viability, location, supply benchmarking and mall management matter in their success.”

Also, retailers have started scouting standalone properties like old mansions, mixed-use buildings and small office blocks in established and emerging locations. “Big-format chains are mandating realty firms to broker deals for them,” said Limaye.