Malls feel the heat as consumers increasingly flock to online shopping sites

Last week, Magnet Mall in central Mumbai shut shop, becoming the latest in a long list of malls to bite the dust.

The mall’s promoters have been looking for a strategic investor. “Retailers have been struggling to keep pace with online players. It is reflecting on revenue. We are looking for a partner by shedding our equity. Our core business is residential projects and not mall management,” says Nayan Bheda of the Neptune Group, which built the mall.

The failure of Magnet Mall, one of Mumbai’s largest, underlines the problems besetting the segment. Even as domestic and international retailers scramble to find the best location for their brands, several malls across India are facing closure due to poor management, bad planning and low footfalls.

Various industry estimates indicate that about 50 malls have closed down over the last 18 months as online retail gains prominence.

More are in danger, say Industry watchers, including Raghuleela in Kandivili, Milan in Santa Cruz, Mega Mall in Andheri, Dream Mall in Bhandup, Eternity in Thane, Sigma and Eva in Bengaluru, and Ampa in Chennai.

In the Delhi-NCR region, at least a dozen malls are looking at the exit option. Several are lying vacant in Ghaziabad, Gurgaon, Noida, Rohini, Vasant Kunj and Pitampura.

While some of these malls have been put on the block, others are being converted into office space or even residential projects.

Says Ashutosh Beri, Managing Director, (West), Project & Asset Management, JLL India: “There is no dearth of instances where mall developers have scrapped the entire blueprint and business model and converted their malls into office spaces.”

Recently, DLF, which is developing malls across India, hired an advisor to boost footfalls in its malls.

Says Susil S Dungarwal, Chief Mall Mechanic of Beyond Squarefeet, an advisory: “Location is the key to success of a mall. Developers don’t look at malls as a retail asset but as a real estate project.

Coupled with high capital outlay and long gestation period, this makes malls unviable for developers.”

He pointed out that of the 300 operational malls in the country, just 5-7 per cent, or about 20-25 malls, are doing well.

Dungarwal added that Ahmedabad has the highest percentage of failed malls.

Industry experts BusinessLine spoke to said a successful mall is one that has a low vacancy rate of around 10 per cent, while an unsuccessful one has a vacancy rate averaging over 50 per cent.

A report by property services firm DTZ says that in the third quarter of the current fiscal year, new mall supply remained limited at 0.8 million sq ft across Bengaluru and Hyderabad, while no new supply was recorded in other key cities. Among the seven large cities, Pune continued to record the highest vacancy level. Vacancy remained tight in both Bengaluru and Chennai due to the limited new supply in these markets.

Godrej Properties MD and CEO Pirojsha Godrej said the company was not looking at entering the commercial property business till there was significant recovery in the economic situation.

Anshuman Magazine, Chairman and MD of CBRE South Asia, says retailer demand remained steady across India’s key markets during the second half of 2014. New supply for the entire year remained sluggish.

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