Malls slash rent to woo retailers

BANGALORE: Mall mania seems to be fading. With inflation cautioning consumers, retailers, too, are watching their step.
While previously it was a mall-owner's market ��� with the mall demanding fixed, steep rents, the market has now turned around with malls pitching lower rentals to woo retailers.
"Despite lack of quality space in the market, the top eight cities in India are currently witnessing around 18% vacancy across the 40 mn sq ft of operational malls.This is because most of the supply has come within the same micro-markets targeting the same catchments, creating an oversupply," says Rajneesh Mahajan, director of retail services at real estate consultancy firm Cushman & Wakefield.
This has had two major implications -- malls have slashed rentals or are converting their projects into office projects.
"A mall in Worli in Mumbai, which is supposed to be one of the best, is seeing occupancy of barely 60% and is tipped to lower rentals," says a Mumbai-based retailer.
Rentals are said to have slumped by 25%-30% over the past four months. In Bangalore, rentals are predicted to fall by another 30% over the next eight months.
"For the upcoming Forum Outlet mall in Whitefield, we're seeing a hardening of stance by retailers. While we haven't reduced our rentals yet, we're trying to add value to the offering," says a senior official of Prestige Estates Projects which runs the Forum chain.
Mall owners are now looking at throwing in freebies like complimentary maintenance and complimentary back-up power.
Contracts are being tweaked from flat rentals to a revenue sharing model with a percentage of sales being diverted to the mall along with a nominal base amount. While hypermarket players are being asked to pay 4%-5% of sales, value retailers are charged 7%-9% and bigger brands 20%. The figure is arrived at by looking at average footfalls and conversion rates.
"I used to get three enquiries a week from mall owners. But now, I get 20 enquiries. That shows the desperation of mall owners who are realising that it's better to negotiate for the right mix at reasonable rates than lie empty on part occupancy," says Jay Gupta, managing director of discount retail format The Loot.
There are three factors that a retailer has to take into account -- power, salary and rentals. "If the rent is more than Rs 100 per sq ft per month, the retailer needs to generate Rs 20 per sq ft per day. Malls generate footfalls, but conversions are low. So if a retailer cannot achieve his target, he has to rethink his strategy," explains a retailer.
The latest report from Cushman & Wakefield indicates that the majority of Bangalore's anticipated mall supply of 8,13,630 sq ft for the year has been staggered to the second half of the year, with east Bangalore likely to see 56% of the anticipated supply for the year-end. There has been a buzz of oversupply and developers are treading cautiously.
"Corrections in rentals in the coming months will depend on factors like location, format and how international the design is and adequate car parking," says a real estate developer.
But not everyone is perturbed. "There are some malls that were offering extremely high rates, which would have dropped in any case. So these slumps do not affect successful malls, which usually have three-year contracts,"
Neeraj Duggal, vice-president (retail development) of Prestige, says.