The Hindu Business Line : Mall development slows in second quarter

New Delhi, July 28 The second quarter of the year has not been as good as expected for development of malls in the country’s major cities. The quarter saw new mall supply of about two million sq ft, less than the anticipated six million sq ft. The shortfall was mainly due to delays in completion of interior finishing and fit-outs, and the ongoing liquidity squeeze.

According to Cushman & Wakefield (C&W), with international retailers and growing urbanisation propping-up demand, as much as 16 million sq ft of mall supply is expected to flow into the market in 2008. The projected mall supply for the coming two quarters in major cities is expected to be over 12 million sq ft.

Rise in inputs costs and global cash crunch has prompted developers to re-work construction timelines, forcing them to constrain supply by holding back new project launches in most cities this quarter.

“Most of the mall leasing happens well in advance, and so the less-than-expected supply cannot be attributed to demand, which still remains strong. The supply has been below expectation as certain finishing specifications stipulated by clients have taken more time. Also, there is some amount of pressure on the overall funding,” Mr Rajneesh Mahajan, Director of Retail Services, C&W, said.

Retailers too seem to be waiting for a correction in rentals. Pantaloon Retail’s Head of Operations (South Zone), Mr Rohit Malhotra, said that while the company’s plans were running as scheduled, as space had been booked at least two years in advance, many retailers were expecting a price correction that would hasten expansion plans.

Pace low

Interestingly, during the second quarter, Chennai, Hyderabad and Pune did not witness fresh mall supply, even as NCR, Mumbai and Kolkata are expected to emerge frontrunners in the upcoming mall space.

In Chennai, malls such as Ampa and Coramandal, which were slated to enter the market this year, have been delayed and are expected to start operations only by next year. Additionally, mall space planned for early next year is more likely to be ready by the second half of the year or 2010.

Retail rentals, as per C&W report, has stabilised across most main streets and malls in all major cities this quarter, with exception of Rajarhat micro-market of Kolkata and Goregaon in Mumbai, which saw over 50 per cent growth in prime mall rentals over the last quarter.

“Despite lack of quality space in the market, the top eight cities in India are currently witnessing around 18 per cent vacancy across the 40 million sq ft of operational malls. This can be attributed to the fact that most of the supply has come within the same micro-markets targeting the same catchments, thereby creating an oversupply within respective neighbourhoods,” it said.

Delhi-based Vishal Retail, said it is scouting for standalone properties. “For this fiscal, we had a target of 13,000 sq. ft. of retail space and most of it standalone (not housed in malls). We believe this will give us greater visibility,” said Mr Ram Chandra Aggarwal, CMD, Vishal Retail.

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