Retail space shrinks due to closure of more malls

A net negative supply of retail space was observed in the country for the first time in 2016 following the closure of some failed malls and limited new supply.

While five malls were shut down last year, 10 were converted into offices, educational institutes, shopping clusters, hospitals and banquet halls – resulting in the withdrawal of about 3.5 million sq ft of retail space.

According to Pankaj Renjhen, Managing Director - Retail Services, JLL India, these malls were located in Chennai, Delhi-NCR, Mumbai and Pune. “It was not the first time that withdrawal of mall space was done, but the quantum this time was far higher than in all previous withdrawals (from the first quarter of 2010 to the fourth quarter of 2015) put together.”

“This is in large part due to the long continuing bipolar dichotomy in the Indian retail sector starting to reach its end. A few more malls are expected to meet a similar fate in the next few years,” he added. While a handful of good malls continue to perform well across the country, there are many average and poor-quality ones that have been seen floundering over the years, more so in the recent years as both mall designs and shopper expectations evolve.

With India positioning itself higher on the global retail ladder, neither retailers nor shoppers want to visit an average or poor mall.

Renjhen said, “A mall’s success is far more dependent on maintaining the best possible tenant mix and having at least a few tenants from the entertainment and food and beverages (F&B) categories. It has been seen in recent years that retailers choose high-quality malls having mixed-use at the right locations. Many smaller-sized malls and those lacking tenants in the F&B as well as entertainment categories are finding it difficult to sustain, something which is going to become tougher with time.”

Last year, the total net absorption of retail space in India was 2.7 million sq ft with Delhi-NCR recording absorption of 1 million sq ft followed by Mumbai at 0.6 million sq ft and Bengaluru at 0.4 million sq ft.

While 13 malls got completed in 2016, 15 malls were withdrawn from the operational stock, resulting in a net effect of minus 0.3 million square feet reflecting on the supply side.

Renjhen said, “Despite these withdrawals, the Indian retail story still remains intact. It is also pertinent to note that in the past few quarters, a new-found interest of private equity investors towards the Indian retail real estate sector has been seen.”

“Moreover, 2017 appears to be a strong year, with over 9.1 million sq ft of supply expected to come in. Completions expected to be ready by the end of this year have highly-skewed pre-commitment levels,” he added.

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