Although the organised retail segment is buoyant as customers are back to spending big on consumer goods, the increase in retail rentals seen in some pockets is a matter of concern for retailers. Retail rentals have already firmed up in the metros in the last six months, and is bound to increase a further 10-15% by the end of the calendar year, threatening to dent retailers? margins. Rentals for the anchor space have risen between 15-20%, whereas the vanilla rentals (those other than the anchor space) have seen a rise of 5-10%, on the back of a revival in retailers? plans for expansion, as well as owing to the shortage of ?well-managed? malls and more importantly, the limited anchor space in malls.
Rituraj Verma, national director (retail), Knight Frank India said, ?Retail rentals are definitely increasing right now, especially in the anchor space, where a huge shortage of space seems to be building up. The increase is being seen in pockets like Bandra Linking Road which has seen an oversupply of space. However, other pockets like malls will tighten due to shortages of space. Average increase expected over next six months is 10-15%.?
RPG Enterprises-led Spencer?s Retail, which plans to double its retail space to two million square feet in next 30 months, feels that for their private-branded stores the increase has been 15-120%, whereas for the large format stores like Spencer?s, the increase could vary from 10-12%. The rise is owing to the increasing euphoria, rise in like-to-like sales and host of other issues. Anurag Rajpal, vice-president (apparel), Spencer?s Retail Ltd says, ?The rentals have surely gone up, but not to the extent that the retailers are hurt by it. Moreover, the margins remain pretty much stable. Plus, most of the retailers are shifting to the revenue-sharing model, which is a win-win situation for both the parties ? developers and retailers.? Rajpal heads the private brands portfolio at Spencer?s Retail that includes brands such as Beverly Hills Polo Club, Lady bird and Mark Ecko.
Interestingly, a report by the real estate agency Cushman & Wakefield reckons that with very little vacancy in high street, spaces have been commanding high values. ?With the markets gaining momentum and retailers, both national and international, revising their expansion plans in India, we are seeing a gradual resurgence in values,? said Kaustuv Roy, executive director, Cushman & Wakefield India. Key cities like Delhi and Mumbai will be seeing a faster rate of growth in values against others due to greater interest in these markets. However, it is heartening to see that high street locations of Bangalore, Chennai, Pune and even Ahmedabad have experienced a growth over the previous year.
Mumbai?s Linking Road recorded one of the highest annual gains in rental values across the globe. The location saw a rise of 33% in its rental values in 2009-10 over the corresponding period last year. In 2009 survey, Mumbai had noted the highest fall in rental values as a result of the economic downturn, said the Cushman & Wakefield report.
Even single-branded retailers like Fila have felt the rentals firming up in certain pockets. Rajiv Bajaj, CEO, Fila India, who is planning to open 60-70 stores across the country in next three years, said, ?The rentals have firmed up in the last six months. On an average, we pay about 10-15% of our sales as rent.?
Kaustuv Roy feels, ?Going forward, we expect many retail markets to gain their previous strength but landlords will be cautious about the rate at which values go northwards. Their lookout would be to keep prices at acceptable limits of growth, given the previous experience of diminished interest for locations with higher values.?
Other retailers like Shoppers Stop, Hypercity and Aditya Birla Retail (ABRL) are also in an expansion mode, and are slowly and gradually shifting to the revenue sharing model as rent is the key component for a retailer and gives the retailer time to make the store profitable. ABRL plans to open 100 supermarkets across the country.