Vacancy rate in malls in major Indian cities rises to 20%
July 31, 2015 - India
A CII-JLL report
on real estate sector, titled: 'Is Indian Real Estate Heading towards a Tectonic Shift?', has thrown up disturbing statistics for the retail sector.
According to the study, vacancy rate in retail malls across major Indian cities stands high at 20 per cent.
The on-going transition within the real estate sector is a pointer of what the near future holds. The report predicts sweeping changes in the way real estate developers conduct their business, particularly looking at the innovative practices and agility of certain new breed of developers,
The report highlights on various components of real estate such as office, retail and residential.
Malls are seeing a lot of churn in recent years. On an average, when business is good, churn rates of around 15-18 per cent have been recorded. In India, the range was 4-8 per cent in well-managed malls during the initial years.
Poorly performing retailers exit malls midway through their lease contracts or landlords initiate churn to improve their portfolio of tenants at some locations while at unviable locations, retailers are driving the churn. Contract periods have shortened to 2-5 years today from 9-20 years seen in the mid-2000s.
The overall vacancy rate today stands at 20 per cent in retail malls in the country
. On the contrary, malls that run successfully have vacancies of not more than 10 per cent, with a selective few ones operating near full capacities. In recent years, bad malls have succumbed to the business viability stress and have given 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.
According to the report, few more malls are expected to withdraw from the retail realty business in the 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. JLL research estimates around 14 malls to withdraw from retail operations, having combined mall space of 3.5-4.5 million sq ft. (SH)