Nirmal Lifestyle, a mall located in the central suburbs of Mumbai, in Mulund, may now be converted to a residential project, three people familiar with the development said. While not confirming the move, Dharmesh Jain, CMD, observed that a residential project is definitely more viable financially given sales of homes result in cash flows immediately. With vacancies in malls across India on the rise even though there’s no new supply coming in, owners of properties with high vacancies are being forced to convert these into either residential complexes or partly commercial outfits. As Sanjay Dutt, executive MD, South-Asia, Cushman and Wakefield, points out, not all mall locations can fly as a housing complex. “Nirmal Lifestyle is a 500,000 sq ft plot in the heart of Mulund and so lends itself to a housing project but others may have to turn the malls into commercial or mixed-use properties,” Dutt observes.
The urgency is high for malls where the vacancy exceeds 50%. For instance, City Centre, Centre One and Palm Beach Galleria will soon become housing or mixed-use properties. All three are located in Vashi, a northern suburb in Mumbai, approximately 35 kilometers away from south of the city. In the vicinity are the Gold Souk Mall and the Wedding Mall, which were planned as specialty malls but are in the process of being converted into residential complexes.
In Pune, the Kakade Center Port in Ganeshkhind Road, Jewel Square in Koregaon Park and East Court in Viman Nagar are among the malls, parts of which are going to become offices. In Hyderabad, the Metropolitan Mall in Banjara Hills, this change has already happened. At the Ansal Plaza, in Khel Gaon Marg in south Delhi, 70% of the space is occupied by offices. In the NCR region of Gurgaon, the MGF Metropolis Mall in MG Road, has converted its top decks to house offices while the lower levels are rented out to retail clients.
Not all poorly performing malls, however, can become wholly residential complexes given that in the northern parts of the country fresh licences need to be procured for a housing property. That’s one reason why some owners have opted to redesign the properties as part-office-part-mall destinations. In places like Pune and Mumbai, however, reworked permissions are easier to get, Dutt explains.
With several developers having resorted to strata-sales — selling individual floors or shops to clients or investors — the ownership of malls has become fragmented. That makes it difficult to redevelop them. As Pankaj Renjhen, MD, retail services at JLL India, points out, “at times an existing structure needs to be broken down and rebuilt. This could also mean looking for more funds and obtaining government clearances and consequently it’s harder for multiple owners to execute a turnaround plan,” Renjhen observes.
Where mall developers are still majority owners, conversions are easier; in cases where there are several stakeholders, each one individually leases or redevelops parts of the same mall.
The Mumbai-based Kohinoor Group, for instance, sold its stake in Kurla to an investor after having burnt its fingers. Atul Modak, vice-president of the real estate division, said the exit was possible because the company held full ownership.
Industry analysts say leasing retail properties can fetch rises in annual rentals of 10%, higher than what an office building can earn. That’s because currently commercial leases are being drawn up for as long as five years with rents getting locked thereby capping the earnings potential. Nevertheless, experts say there is likely to be more conversion of malls into commercial spaces and residential projects as mall vacancies rise. According to DTZ, a global real estate consulting firm, all-India mall vacancies escalated to 17% in December 2014 from 13.2% in December 2013, despite supply declining by 40%.