A third of all mall space in Pune and Ahmedabad — traditionally the graveyards of Indian retail — remained vacant in 2014 even as vacancy rates at malls across the country escalated to 17% at the end of 2014, up from 13.2% a year earlier, according to consulting firm DTZ. Pune’s vacancy rates stood at 33.3% while that for Ahmedabad was 32%.
That’s despite a 40% decline in the supply of space during the year. Even in the relatively better markets like Mumbai and the National Capital Region, mall vacancies stood at 20.6% and 19%, respectively, and the levels aren’t expected to be very much better for the three months to March.
In Pune, malls have crowded each other out. As Sanjay Dutt, executive MD, Southeast Asia, at Cushman and Wakefield, points out, for a mall to be viable, it needs a primary catchment area of two to three kilometres. “In Pune’s Nagar Road, four malls have come up on the same road eating into each other’s primary catchment. In Aundh, another micro-market in Pune, there’s just Westend so that is occupied to the extent of 80%,” Dutt said. Pulse Mall on Nagar Road, Ishanya Mall in Yerawada, Center Port Mall on Ganeshkhind Road and Koregaon Park Plaza are the malls in Pune that are over 50% vacant.
Mahesh M, CEO of Ishanya Mall, confirmed that the current vacancy rate is 60%, adding that by March 2016, it should reduce to 30%. “Rents have been rationalised and 40% of the space allocated to fine-dining and hosting events to attract footfalls,” Mahesh said.
Ahmedabad has its own unique problem. Dutt explains that Ahmedabad has just four to five malls, of which only one is fully occupied. The remaining malls have sold individual floors to retailers or investors, which makes mall-management a challenge. Separate parts of the same mall having different owners potentially leads to conflicts on who is ultimately responsible for operations and maintenance.
According to Dutt, because of the dismal performance of malls in Ahmedabad, retailers prefer to pay almost twice the rent and locate themselves on high streets. Mall-management issues due to partial sale of space is a problem in Mumbai too.
“When ownership gets diluted, the management of the mall suffers and these malls typically suffer over 50% vacancies,” said Subhranshu Pani, joint MD, retail, at JLL India. Atria mall in Worli, Mega Mall in Andheri, Crystal Point in Andheri, Nirmal Lifestyle in Mulund and Center One in Vashi are among those malls that have vacancy rates in excess of 50%.
Dharmesh Jain, chairman and managing director, Nirmal Lifestyle says the firm has learnt a lot from its first construction that is soon going to be shut down. “A mall needs to be of a certain size and so Nirmal Lifestyle 2 will be a million-sq-ft venture, twice the existing one in Mulund,” Jain told FE, adding the company would be entering into more revenue-sharing agreements this time.
Given several retail chains have plans to roll out stores — Burger King intends to open 12 stores in Mumbai in 2015, Krispy Kreme plans to roll out 80 stores in the next five years while Max hypermarket is looking at 30 stores in India by 2019 — quality locations should continue to find takers.
Additionally, McDonalds, Marks and Spencer, Star Bazaar (Trent-Tesco), Zara and Pantaloons are looking to expand their footprints in markets such as Hyderabad, Delhi-NCR and Mumbai. Global retail giants such as H&M and TopShop are also slated to enter India soon. However, each of these brands is likely to choose a handful of malls that are doing well.
Some of India’s top performing malls include Phoenix Mills, Oberoi Mall, RCity mall and Infinity Mall in Mumbai; Select City Walk in Delhi; Forum in Bangalore; and Quest in Kolkata. All these malls have 90% occupancy, said Rohit Kumar, head of research at DTZ.
The next two years could see little supply as cities are already suffering high vacancies and developers have become cautious. What’s worrying is that they do not anticipate a fall in vacancy levels. “None of the underperforming malls till date has been able to improve occupancy,” said Kumar. Some establishments such as the Jewel Square Mall in Pune and City Center Mall in Vashi have been converted to commercial office buildings.