A latest report released by Cushman & Wakefield India reveals that mall rentals in high streets of Ahmedabad, Bangalore, Hyderabad, Kolkata, Chennai, and NCR witnessed a 9-25 percent increase across India, whereas rental values across most malls remained largely stable. The findings of the report are based on the survey of eight cities including Ahmedabad, Bangalore, Chennai, Hyderabad, NCR (including Delhi, Gurgaon, Noida, Ghaziabad, and Faridabad), Kolkata, Mumbai, and Pune.
According to the report, Ahmedabad, Bangalore, and Hyderabad saw rental hikes in the range of 15-30 percent. Vastrapur in Ahmedabad recorded the highest growth in mall rents at 33 percent over last quarter mostly owing to renewals of existing tenants at a higher value. Most high streets across major cities recorded significant increase in rental values, as against malls, reflecting the bent of interest amongst retailers for high street properties. Select locations across Hyderabad (AS Rao Nagar and Punjagutta) and Bangalore (Vitthal Mallya Road) recorded 20 percent rental increments over the previous quarter. AS Rao Nagar in Hyderabad saw the highest increase in high street rentals at 26.7 percent followed by Vitthal Mallya Road in Bangalore at 23 percent. Kolkata, Chennai, and NCR also saw increase in high street rents by 9-14 percent.
The retail real estate market received a fresh mall supply of approximately 1.94 million sq.ft. (msf) in first quarter of 2012 (quarter ending March 2012). Many of the expected mall projects were differed on account of delay in construction, leading to a deficit of close to 50 percent from the estimated supply (3.37 msf) for the quarter. The undelivered mall space is expected to get added to the supply for the next quarter which is estimated to be 4.25 msf. Of the eight major cities across India, Bangalore led the supply scenario with a total infusion of 1.2 msf.
Commenting on the findings of the report, Jaideep Wahi, Director, Retail Services, Cushman & Wakefield, said: “The first quarter of the year has been positive for the retail market and indeed over the last one year. While the mall space has been moving cautiously to ensure that demand to supply ratio remains stable to maintain rental values, the high streets continue to see increased demand and interest from a range of retailers.”
Wahi further added that globally, India is being viewed as an interesting cusp from where retailing can take a quantum leap. The approval for 100 percent FDI in single brand retail in India is a crucial step towards restructuring the retail scenario in India. “We expect more international retailers to show interest in India which would eventually lead to a more structured approach towards retail real estate in India,” he said.
The report also mentions that NCR’s retail market was largely driven by leasing activities on the high streets where retailers showed greater interest. South Extension I & II (9.10 percent), Karol Bagh (7.7 percent), and Cannaught Place (4 percent) registered a rise in rental values on account of inquiries from retailers and leasing activities. Malls on the other hand continued to see cautious approach by retailers, thereby witnessing limited supply and restrictive leasing activities. The limited availability of quality space has been forcing retailers to commit to the existing space because of which vacancy levels remained unchanged at 28 percent from the previous quarter. Rentals across the mall space remained unchanged from the previous quarter and incidentally from the last year as well.
Mumbai’s retail market remained stable with both high streets and mall space rentals unchanged over the previous quarter. No new addition to mall space and limited leasing activities on high street was largely due to unavailability of quality retail space within the city. The only micro market to record an increase in rental values was Vashi (7 percent) for malls, where a churn in the existing malls led to an upward recalibration of rental values. Going forward, the latent retail interest for the city is expected to remain high and retailers will be keen on having both high street and mall presence.
The report highlights that in Bangalore, Vitthal Mallya Road was the hot bed for retail action with both high street and mall space in the location recording a growth in rental values – high street rentals increased by 25 percent and mall rentals grew by 14 percent quarter-on-quarter. The location has been witnessing some rapid increase in retail activities owing to the presence of the city’s only luxury mall that has been drawing interest from premium brand retailers. Other than that the advantage of being surrounded by a good retail catchment area has been the key to the location’s rise. A new mall of 1.3 msf became operational with nearly 80 percent occupancy notwithstanding that quality mall space is still relatively scarce because of which mall vacancies remained at a manageable 10 percent.
In Hyderabad, persistent leasing inquiries and scarcity of suitable space pushed rentals upwards in the range of 9 to 20 percent across the city’s prime high streets and mall locations. Retailer demand for space in Hyderabad has been high on account of the favourable consumer demand and also affordable rentals (as compared to other cities in India). With these several high-end/small format retailers actively evaluating space options, developers are willing to customise their spaces in order to accommodate expansion plans for the under-tapped retail potential in the city. The high demand for retail has led to vacancy of less than 2 percent in existing malls where retailers are conceding to renew their contracts with developers on higher rentals to avoid relocation.
Rental values across malls and high streets remained unchanged from previous quarter largely due to unavailability of leasable space reflected in a status quo. The only exception was Khader Nawaz Khan Road that saw a strong demand resulting in noticeable rental appreciation. The city witnessed increased vacancy levels of 8.2 percent due to new malls getting relatively lower occupancy. However, the mall vacancy in suburban markets registered a marginal dip due to moderate leasing activity. It is expected that the rentals on most high streets are likely to remain stable. Some markets like Khader Nawaz Khan Road and Velachery are likely to see rental escalations in the forthcoming months as a result of anticipated demand and already limited space.
In Pune, while retailers showed optimism as a new mall became functional with 80 percent occupancy in the first quarter of 2012, rentals remained stable due to sizeable vacancy in the mall at around 20 percent. A marginal drop in mall rentals is expected due to the influx of approximately 700,000 sq.ft. of additional mall space in the micro market of Hadapsar. Lack of available space in the high street led to stable rentals across the city. The high streets are likely to witness some escalation in rentals due to the lack of quality space and continued inquiries from international brands looking to establish their presence in these micro markets.
In Ahmedabad, there was buoyant demand for mall space, with retailers re-looking at the city with renewed interest. Previously, Ahmedabad suffered from lack of quality mall space but in the last quarter Vastrapur has seen some leasing activities on account of quality development and appropriate mix of tenants. The corresponding increase in rental values in Vastrapur was recorded at 33 percent. Vacancy in city malls, however, remained high at 36 percent as some of the older malls space continued to remain vacant. On high streets, stable demand and limited quality availability resulted in price appreciation on S.G. and Satellite Road. In Ahmedabad, demand for retail space is diversified to categories such as Telecom and BFSI that also look at retail hotspots for their customer related operations.
Kolkata’s traditional high street locations of Park Street, Camac Street, and Elgin Street all recorded notable increase in rental values on account of continued interest from retailers. The mall spaces on the other hand did not see changes in rental values even though there were inquiries and some leasing as well, largely because there is limited space available for any major transaction within the malls leading to a status quo. The threshold of price increase that the malls can afford to inflict is also low because of which mall developers would be judicious in escalating prices even while demand is reasonably favourable.
Cushman & Wakefield is a commercial real estate services firm founded in 1917. It has 234 offices in 61 countries and more than 13,000 employees.
