1. High-occupancy malls draw steep rental premiums

High-occupancy malls draw steep rental premiums

With most malls in the country reporting low footfalls and occupancy rates, retailers are opting to house themselves only in the better-performing malls.

By: | Mumbai | Published: September 7, 2015 12:37 AM
mall

By one estimate, the number of malls reporting even half-decent occupancies is now less than 15 although 200 of them are operating. (Reuters)

With most malls in the country reporting low footfalls and occupancy rates, retailers are opting to house themselves only in the better-performing malls. Industry sources say leases are being renewed at steep premiums in malls where occupancies are around 90%. As a consequence, marquee malls like Select City in Delhi have seen a three-fold jump in rentals over the past eight years. To be able to sell from here, retailers must now be willing to cough up anywhere between Rs 750 per sq ft and Rs 1,100 per sq ft.

By one estimate, the number of malls reporting even half-decent occupancies is now less than 15 although 200 of them are operating.

Hugo Boss, Just In Vogue and Judith Leiber have all renewed their leases at Phoenix Mills at almost twice the earlier rents. Hugo Boss will retain its space in Palladium but will now pay twice as much — a reported Rs 700 per sq ft — while Just in vogue, a one-stop destination for luxury watches, like Kenneth Cole, Calvin Klein, Tissot and Emporio Armani, will pay 30% more to stay on in Palladium. Gaming outlet Smaash will continue to occupy 25,000 sq ft at a rental premium of 55% in Hyderabad’s Inorbit mall, owned by K Raheja. And Danish fashion brand Vero Moda has checked in to Oberoi Mall in Goregaon, forking out 33% more than the previous occupant. Rents include charges for maintenance of the common areas.

Rajneesh Mahajan, COO, Inorbit Mall, says rents are bound to escalate because retailers are aligning with the earning potential of malls and that has changed over the years. Moreover, as Vishal Mirchandani, CEO (retail and commercial), Brigade Enterprises, points out, it is easier to take a call on these rents because consumption behaviour and payouts in a mall are now known.

“So, retailers are not really taking a big risk as they would have, had they signed on with the owner of a new mall. Now, they can be reasonably sure of the volumes they are likely to achieve,” Mirchandani observes.

Among the top malls in India now are High Street Phoenix and Palladium, which have an average trading density of Rs 2,550 per. sq. ft, and command footfalls. But, as Arvind Singhal, chairman of Technopak points out, not all retailers can afford to be here at fancy rents. “It”s only a handful of brands like Gap and Zara that generate revenues close to Rs 7000 per. sq. ft that can pay these rents,” Singhal explains.

Gr4

JLL India estimates less than 15, of the 200 operational malls, are performing. Of these, Select City Walk, Oberoi Mall and Palladium were set up amidst the crisis of 2008, when developers were struggling to lease out space. At the time, Hugo Boss, Pantaloons, Big Bazaar, McDonald”s were among the handful of players willing to set up shop there. But that has changed and now mall owners are calling the shots. This has resulted in the tenure of mall leases being shortened since malls can”t afford to retain retailers who aren”t able to deliver the goods in an environment where revenue sharing is as important as the fixed rental. Only marquee brands are able to negotiate longer leases of five to six years. Some malls like Oberoi Mall, Infinity II and Palladium and High Street Phoenix and a few in Delhi, have a long waiting list of as long as a year, say industry experts, who also add that rents in Select City, Palladium, have jumped 25%  in the past one year while Oberoi Mall is quoting rents that are 50% higher than they were last year for better-located stores.

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