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Anjali Prayag

Bangalore, Oct. 24 Mall owners in India, hit by 20-25 per cent fall in retail rentals this year, will move towards the revenue sharing model with their tenants. Globally, all malls have adopted this business model, though most of the 600 malls in India have gone in for fixed rentals.

Says Mr S. Raghunandan, CEO of Retail, Prestige Estate Projects, which owns and operates the Forum Mall in Bangalore, “Occupancy rates have to be made more affordable and this can only be done through the revenue sharing rental model.”

Three to five years ago, when mall development took off in a big way in the country, mall owners were chasing the top line instead of the bottom line, says Mr Arvind K. Singhal, Chairman, Technopak India.

Therefore, signing up tenants for space was more important, and the easier way to do this was through charging a flat rate. But with the market slowing down and retailers under pressure from both their shareholders and private equity partners, profit and loss of stores are taken more seriously.

In such a situation, retailers are finding it difficult to sustain fixed rental rates. For mall owners too, falling rentals has become a cause for worry.

With both the parties realising that it’s not really a totally inelastic situation, the retailing sector now prefers to follow a mixed rental pattern where the fixed part is decided by the brand of the mall and the variable part by the revenues of the retailers.

The Minimum Guarantee scheme works better over a period of time, says Mr B.G. Uday, Managing Director of Bangalore-based Garuda Malls, though he still operates on the fixed rental system in both his malls.

Prestige Estate has opted for revenue sharing model right from the beginning when it launched the Forum Mall five years ago. In Mr Raghunandan’s view, this works well for both the mall owner and the tenant “in both good times and bad times.”

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