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With the Government yet to firm up its decision on foreign direct investment (FDI) in multi-brand retailing, mall-owners such as Mr Uday Garudachar are in a fix. And that gives retailers an upper hand in negotiating for space.
Generally, big brands prefer to sign three-to-five-year lease agreements with 10-15 per cent increase in rentals every year, thus tying up mall space for that period.
Mr Garudachar, promoter of Garuda Malls in Bangalore, says, “The Government has been dangling the FDI carrot for too long now. We are left wondering whether to go ahead with existing lease agreements or wait for FDI to open up when we can command higher rentals.”
However, the anticipation of freeing of multi-brand retail in the country has injected life in mall rental values in the last one year. “In the last two months alone, Government announcements have resulted in mall rentals shooting up by 10-15 per cent,” says Mr Susil Dungarwal, Founder and Chief Mall Mechanic, Beyond Squarefeet Advisory.
In fact, some mall-owners have already started speeding up completion of their projects. According to him, by 2014, 700 more malls will come up in the country, taking the mall count to over 1,000.
According to global real estate consultants CB Richards Ellis, the additional supply would exert some pressure on developers to offer rental discounts and maintain flexibility to avoid higher vacancy levels in the long term.
For instance, an additional supply of mall space would help retailers gain an upper hand while negotiating for space deals. However, retailers are open about expanding on ‘good' high street locations that offer parking space and enough footfalls.
Mr Ajit Joshi, CEO and MD, Infiniti Retail that operates the Croma chain of stores, says: “We went with an open mind while expanding and now have 65 per cent of our stores on high streets. We'd rather have professional high street developments rather than mall space built in an unscientific manner that directly impacts footfalls.”
It's a win-win situation for upcoming malls and existing retail tenants, point out analysts.
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