India’s retail real estate has undergone a transition. One of the major trends witnessed, over the decade, is the growing divide between successful and unsuccessful malls in India, according to a research report by Jones Lang LaSalle India.
The report notes that in the past few years shopping centre developers have reduced supply of mall space in India due to rising vacancy levels. However, prior to that, developers had resorted to break-neck pace of construction of malls in response to a spurt in organised retail business. Irrespective of the design quality, mall management practices and so-called best practices, developers continued to supply retail space on the back of growing demand from existing and new retailers. Back then, few developers had realised the right ingredients for constructing a successful mall. Post the slowdown in Indian economy in 2010, realisation seeped in that quality is required for enduring results.
Unlike commercial buildings, whose tenants are stable and share common facilities, management of retail malls is complex. Apart from catering to various brand categories, mall management also involves planning the right tenant mix, space optimisation and zoning, and constantly studying shopper behaviour. Malls need to collect feedback from visitors to be relevant in all seasons. Otherwise, they will be out of the competition, the JLL report states.
“It took a long time for Indian real estate developers to realise that mall development and management is a long-term business. It is closer to building and running a hotel, rather than building and selling apartments, ” explains Amit Bagaria, Founder Chairman, ASIPAC Group.
“Retailers did not help either, as in the mad scramble for market share and growth they signed up whatever spaces were available, paying little or no attention to whether the developer would be involved in the long-term running of the mall,” he adds.
The overall vacancy rate today stands high at 20% in retail malls across major Indian cities, report points out. On the contrary, malls that run successfully have vacancies of not more than 10%, with a selective few ones operating near full capacities.
In recent years, we have seen bad malls beginning to succumb to the business viability stress and giving up hope. Consequently, these malls are either converting into Grade-B office spaces or getting demolished to make way for a new asset class in real estate.
“The answer includes a mix of several factors. From the developers’ point, the key success factors for a mall are location, accessibility, parking, tenancy mix, store sizes, design, marketing, maintenance and regular updating. While a large majority of malls in India are correctly located, they fail on one or more of the other factors, ” explains Bagaria.
The report further foresees more malls to withdraw from the retail realty business in a near future, as a result of which, the business of average and good performing malls will improve. This is a much-needed course correction, which will continue to happen for some time. Around 14 malls are expected to withdraw from retail operations, having a combined mall space of 3.5-4.5 million sq ft.
Some experts are of view that the retail real estate future lies on large space for malls. “‘The more the merrier’ is the concept that will work in the retail real estate sector, as bigger malls can offer wider offerings and hence sustain for a longer period,” says Arif Sheikh, Former Chief Executive Officer & Executive Director, Entertainment World Developers Ltd.(EWDL).
“Shoppers of this age with multiple demands in limited time carefully choreograph their shopping trips. Million square feet size and prominence means that, for good or ill, these malls have a significant impact on industry and its character. There is growing acceptance that as long as big malls are well designed, made, leased and suitably located, they can accelerate retail growth in India,” he notes.
