Retail real estate expects to see 13 msf of Mall supply: Cushman & Wakefield

The total supply that was estimated to enter the market in 2014 was approximately 12 msf of which less than 15% came into existence amounting to indefinite deferment of approximately 25 malls across key cities of India.

Jan 16, 2015 04:01 IST India Infoline News Service

The retail real estate sector witnessed yet another slow year with limited retail space getting added to the total supply, reports Cushman & Wakefield, a global real estate consultancy. At the end of 2014, only 1.7 million square feet (msf) of fresh mall space was infused in the top eight cities of India. Leading cities of India saw an addition of only 5 new malls of which Pune noted the influx of 2 malls adding upto 500,000 square feet (sf) of mall space. Hyderabad (500,000 sf), Bengaluru (310,000 sf) and Delhi-NCR (250,000 sf) witnessed an infusion of 1 mall each. Kolkata saw an addition of 120,000 sf to the city mall inventory.
 
The total supply that was estimated to enter the market in 2014 was approximately 12 msf of which less than 15% came into existence amounting to indefinite deferment of approximately 25 malls across key cities of India. Maximum number of malls (9) were deferred in Delhi-NCR totalling to 6.7 msf of new mall space, which is 56% of the total mall space deferred. Though Bengaluru, Pune and Kolkata witnessed some supply during this year, a large quantum has been deferred.  Bengaluru lost out on 7 planned malls while 4 malls were deferred in Pune.  Kolkata witnessed the deferment of 1 mall while Chennai and Hyderabad both witnessed the deferment of 2 malls each. The delays have happened due to a variety of reasons, mostly from approval construction linked delays in Pune, Hyderabad, Bengaluru, Kolkata and Delhi-NCR. However, low demand has also led to the deferment of some malls in Delhi-NCR, Bengaluru and Chennai.
 
Deferment in Q4 2014 from Q4 2013
City Number of Malls Total Volume in
(Square Feet)
Ahmedabad 0 0.00
Bengaluru 7 3.00
Chennai 2 1.00
Hyderabad 2 0.00
Kolkata 1 0.00
Mumbai 0 0.00
NCR 9 7.00
Pune 4 1.00
India 25 12.00
Volume in e Feet Mall Source: Cushman & Wakefield Research
 
However, leasing activities in the existing and new mall spaces remained stable with vacancy levels remaining similar to the previous year recording a very marginal drop in vacancy at 0.2%. The average vacancy level stood at 14.3%.
 
Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield said, “There has been a period of low activities in the mall supply across the country as the developers are cautious of taking up retail projects which are high gestation and high investment as retailers still remain concerned on uptake and are therefore cautious with their expansion plans in India. Having said that, any new retail location that has appropriate catchment areas have witnessed good levels of activities.”  
 
Pune witnessed robust leasing activity and the vacancy levels dropped by 3.5 percentage points despite new supply infusion. Hyderabad and Kolkata also witnessed the mall vacancy of the city dropping by 0.5-0.7 percentage point during 2014 owing to increased demand. Vacancy levels in Ahmedabad increased the most by 1.8 percentage points due to low preference for poor quality mall space, followed by Delhi-NCR, where the mall vacancy level rose by 1.3 percentage points due to exits in select malls in eastern and north-western part of the city. Mall vacancy level increased by 0.9 percentage point in Bengaluru due to retailers exiting poor quality mall space and malls with accessibility issues. Due to churn, Chennai and Mumbai witnessed marginal increase in mall vacancy level.
 
The estimated supply for 2015 is expected to be at 13 msf, all of which is expected to be a carry forward from the previous year. NCR which had seen the highest deferment in 2014, is expected to see the highest new supply of 6 msf followed by Bengaluru which is expected to see supply of approximately 3.39 msf in 2015. Pune and Kolkata are expecting new mall supply of a little over 1 msf while Chennai and Mumbai will see 500,000 sf of new malls by the end of 2015.
 
Vacancy & Mall Supply 2014 and Forecast for 2015
City Y-o-Y Vacancy  Change Supply 2013
(in million sf)
Supply 2014
(in million sf)
Supply 2015 (F)
(in million sf)
Ahmedabad 1.8% 0.00 0.00 0.00
Bengaluru 0.9% 0.00 0.31 3.39
Chennai 0.2% 2.01 0.00 0.50
Hyderabad -0.5% 0.43 0.50 6.06
Kolkata -0.7% 0.50 0.12 1.23
Mumbai 0.1% 0.94 0.00 0.50
Delhi-NCR 1.3% 0.00 0.25 6.06
Pune -3.5% 0.70 0.50 1.14
TOTAL -0.2% 4.59 1.68 13.01
Source: Cushman & Wakefield Research
 
Sanjay further added, “The ambiguity around the Government’s stand on allowing FDI multi brand retail in India, is one of the key reasons for developers and investors to keep off creating large retails spaces. The growth in online sale activity in recent past has only added to the challenges faced by off line retailers. Going forward, in 2015, retail development activities are expected to remain stable but shy of seeing any large scale standalone mall development. Exceptions will be there where land is zoned - retail or commercial or where mixed used development is able to allow cross subsidies retail development. The expected supply for 2015 for mall space is estimated to be 13 msf all of which are the deferment from previous year. However past trends indicate 60% to 70% of the total estimated supply only opens for occupancy.”
 
City Wise – Retail Market Analysis
 
Ahmedabad
Limited availability of quality mall space kept the transaction activity in Ahmedabad low. Increasing vacancy levels in a few poor quality malls on S.G. Highway led to city’s overall mall vacancy increasing by 1.8 percentage points over the last one year and was noted at 32.1%. Despite rising vacancies, landlords kept the rentals for these malls steady during the last year. Since higher preference for main-street format was noted in Ahmedabad, it did not witnessed any mall supply during 2014 and currently has just one under-construction mall.
 
Transaction activity in main-streets remained healthy during the last one year and some domestic brands such as Tisva and Satyug Gold opened their first stores in the city. Banks, apparels and lifestyle brands expanded footprint in prominent main-streets such as C.G. Road, Satellite Road and Prahladnagar. However, currently availability in prime main-streets such as C.G. Road, Satellite, Law Garden and Prahladnagar remains low. Rentals across all major main-streets remained stable over the last one year.
 
Bengaluru
Bengaluru has witnessed an addition of a new mall in the northern part of the city, increasing the total mall space by approximately 300,000 sf in the year 2014. Bengaluru witnessed deferment of 7 malls admeasuring 2.6 msf to 2015. This large scale deferment was due to low demand in some under-construction malls in northern and eastern Bengaluru and unanticipated project delays in other malls. Legal complications have halted the construction of one mall. The overall mall vacancy is currently noted at 9.3%., increasing by 0.9 percentage point during the year due to some retailers exiting from select poor quality malls. Rentals for malls located in Mysore Road and Cunningham Road dropped steeply by 19% and 10% respectively over the year and Rajarajeshwari Nagar also experienced a yearly rental drop of 6%. Poor quality mall space and accessibility issues were the predominant causes for this downward movement of mall rentals.
 
The rentals in most main streets have remained stable during this year. However, owing to high demand from apparels and F&B brands for spaces in New BEL Road throughout the year, annual rental appreciation of 4% was noted. Due to the non-availability of optimum sized floor plates, Vittal Mallya Road has witnessed a 10% correction in its rentals during 2014. Koramangala 80 Feet road experienced a market fluctuation due to the simultaneous entry and exit of retailers of apparels, footwear, electronics and F&B segments leading to an 8% dip in the rentals over the year. Infrastructure improvements along Brigade Road have caused lesser footfalls thus leading to 6% decline in rentals over the previous year. The increased availability of spaces in Indiranagar 100 Feet Road has led to rentals dropping by 5% over the year. During this year, a prominent national jewellery brand, Kalyan Jewellers, opened 2 flagship stores in prominent main streets of the city.  
 
Chennai
In 2014, no new mall supply became operational as 2 under-construction malls comprising of nearly 1.1 million square feet (sf) spilled over to 2015 due to slowdown in construction activity. However, 3 malls admeasuring 1.45 msf cumulatively began construction in 2014 and are expected to become operational after 2-3 years. In wake of new mall supply and low retailer penetration inside malls, the overall mall vacancy levels remained stagnant at 6.6% at the end of this quarter, registering a marginal uptick of 0.2 percentage point over Q4 2013. Rentals for malls in Chennai-Western and Chennai-South registered a 2-4% year-on-year (y-o-y) rental decline due to ongoing infrastructure work impacting footfalls and low demand for poor quality space, respectively.
 
Retailer demand for main streets remained robust and many apparels, spa & salon, footwear and jewellery retailers expanded their presence on established main streets such as Nungambakkam High Road, Khadar Nawaz Khan Road and Adyar Main Road. Dearth of supply coupled with high demand from apparels pushed the rentals up by 7-13% in Adyar Main Road, Purusawakam High Road and Pondy Bazar over the last one year. However, Cathedral Road-R.K. Salai witnessed a 10% decline in rentals over the last one year due to non-availability of optimum sized floor plates curtaining retailers’ interest in this location. Over the last one year, emerging main streets such as MTH Road (Ambattur) and East Coast Road gained traction from domestic retailers in F&B, apparels and electronics segments. 
 
Delhi-NCR
The year 2014 witnessed new mall supply of 400,000 sf in Delhi-NCR after witnessing the last fresh mall infusion in Q2 2012. However, 9 malls admeasuring 6.7 msf were deferred to 2016, mostly due to approval delays hampering the construction pace. A few under-construction malls in Noida and Greater Noida witnessed low demand and so were deferred to the next year. During the year, malls in developing locations such as Sohna Road and Golf Course Road in Gurgaon, Indirapuram in Ghaziabad and Pari Chowk in Greater Noida witnessed healthy absorption by F&B, apparels and spa & salon retailers. New supply and exits by few multi-brand retailers occupying sizeable areas in malls of East Delhi, Ghaziabad and Pitampura led to overall vacancy levels reaching 14.9% in 2014, an increase of 1.3 percentage points over the last year. Average rentals remained stable in mall locations as both retailers and landlords exhibited sensitivity to any rental change amidst prevailing weak economic sentiments.
 
Demand in main street locations witnessed over the last year with F&B and apparel segments being the prime demand drivers. Main street locations of South Delhi continued to witness high demand with Greater Kailash I and II witnessing the highest number of transactions. On an average store size take-up recorded during 2014 has declined from the previous year because of the existing high rentals. Due to limited availabilities and robust demand in select main street locations of South Extension, Connaught Place, Rajouri Garden and DLF Galleria, the rental values increased by 3-8% over this year; other main streets maintained steady rentals. 
 
Hyderabad
Hyderabad witnessed the influx of a new mall constituting of 500,000 sf in Kukatpally micro-market during 2014. Despite the infusion of fresh mall supply, the city witnessed a drop of just 0.5 percentage point in the mall vacancy levels on account of limited leasing activities. 2 small malls, adding up to 295,000 sf of mall space, were deferred to 2015 due to funding and administrative issues impacting the pace of construction. Reduced footfalls in select malls in NTR Gardens, Himayathnagar and Banjara Hills coupled with poor availability of quality mall spaces resulted in poor leasing activity during this year. The rentals in all mall micro markets remained unchanged due to moderate demand and adequate availability of existing space. Due to churn, some reputed domestic and international brands in apparels, food and beverages (F&B) and electronics have taken up space in Madhapur, Banjara Hills and Kukatpally.
 
Main street rentals remained unchanged across all submarkets, except Jubilee Hills Road No. 36 which witnessed a year-on-year decline of 4% in rentals due to parking issues and congestion caused by the ongoing metro construction activities in the vicinity. Whilst main streets of Banjara Hills, Jubilee Hills, Himayathnagar and Kukatpally locations witnessed increased demand from apparels, footwear and food and beverage (F&B) retailers. Peripheral locations like Attapur, Kothapet and Uppal also witnessed active enquiries from electronics and apparels retailers in this year.
 
Kolkata
Kolkata’s retail sector witnessed higher leasing activity in 2014 as compared to 2013. Remaining part (120,000 sf) of a new mall which got operational last year in South Kolkata came into supply in 2014. Malls in East Kolkata and Park Circus submarkets saw buoyant leasing on the back of churning and some availability of quality retail space. Overall mall vacancy levels dropped by 0.7 percentage point to 3.2% by the end of Q4 2014 amidst healthy demand. With moderate demand and high existing rentals, no rental movement was witnessed in any of the malls during 2014.
 
Main streets saw significant improvement in leasing activity in 2014 compared to the last year. Prime main streets in central Kolkata continued to witness maximum leasing activity followed by Gariahat and Kankurgachi. Apparels and F&B segments were the most active across malls and main streets during the year. Despite the healthy demand, rentals on main streets remained stable throughout the year as the rentals have already peaked in most main streets.
 
Mumbai
Transaction activity in Mumbai malls were limited during the year due to lack of quality space. Occupancy levels in quality malls remains high while majority of the vacancy is concentrated in lower quality malls. Despite no new supply during the year overall mall vacancies increased 0.1 percentage point in the last one year to 15.4%. This was due to rising vacancy levels in few lower quality malls in Andheri, Mulund and Thane where existing vacancy levels were high and had low preference amongst retailers. Rentals in mall markets like Goregaon (17%), Vashi (7%) and Lower Parel (4%) increased over the last year due to high demand from apparels, lifestyle and F&B segments. High vacancy levels lead to developers reducing rentals in Ghatkopar by 9% over the last year to attract tenants. Since Q1 2014, over the 3 quarters of 2014 Bhandup also has witnessed a 17% drop in rentals due to low demand. Increasing vacancy levels and lower quality of availabilities in Mulund led to rentals correcting by 9% in Mulund during the last year. Limited churn kept mall rentals stable in all other locations of the city.
 
Main-streets in Mumbai witnessed vibrant activity during the last one year. Main-street rentals at Vashi appreciated by 9% during the last year due to healthy demand in this residential hotspot by F&B and apparels brands. During the last 3 quarters, post Q1 2014, Chembur also recorded a 9% rental appreciation due to increased demand. Rentals in South Mumbai locations like Fort/Fountain, Colaba Causeway and Kemps Corner declined between 7 to 11% in the last one year. The high rentals in these locations has impacted feasibility of businesses leading to lower demand and rental correction.
 
Pune
Two malls totalling 500,000 sf became operational in Pune in 2014, both in Pimpri-Chinchwad. Buoyant transaction activity was noted in malls across the city resulting in a dip in the overall city mall vacancy by 3.5 percentage point to 23.0% during 2014. This decline in vacancy level can majorly be attributed to the fresh leasing witnessed in three new malls which opened during the past two years and to the continuous churn of tenants in established malls. 2 major departmental stores started operations in malls located in Hadapsar and Pimpri. 4 malls, adding up to 1.14 msf of gross leasable area, were deferred to the next year mostly due to construction linked delays. Malls situated in Hadapsar witnessed high demand from retailers across all segments for a quality mall which became operational in 2013, leading to nearly 30% yearly increase in mall rentals. Rentals in Koregaon Park malls dropped by 9% during the year due to increased competitive pressures from nearby established and emerging retail areas.
 
Prime main streets such as Aundh, JM Road, FC Road and MG Road continued to be preferred choice of occupiers during the year and recorded 3-12% year-on-year rental growth due to the high demand and limited availability. The leasing activity was dominated by lifestyle brands during the year in Pune comprising of a mix of apparels, jewellery, footwear and accessory stores. Koregaon Park main street also witnessed rental drop of 7% during this year, due to limited retailer demand and declining importance of this location.

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