NEW DELHI — A report by Cushman & Wakefield said mall vacancies in India’s major cities, including New Delhi, Bangalore and Calcutta, were as high as 19.6 percent in the first half of 2012 and that mall space was 30 percent less than previous projections.

This story first appeared in the July 30, 2012 issue of WWD. Subscribe Today.

Retailers often consider the region that includes the capital New Delhi and the surrounding areas of Gurgaon and Noida as a primary area for expansion. However, the region had a high mall vacancy level in the first half, at 28 percent.

An additional 120,000 square feet of retail space was added to malls in the region in the first quarter but none in the second quarter.

But the vacancy levels do not appear to have fazed the market and analysts consider it more as a note of caution than a real worry.

“With high vacancy levels as well as cautious expansion plans of retailers, the deferment of supply is a necessary measure to bring stability in the retail market,” Jaideep Wahi, director of the retail agency of Cushman & Wakefield India, explained. “The current pace is, in fact, expected to help in maintaining a healthier supply-to-demand equation, especially for oversupplied micro-markets.”

While Mumbai had a lower level of mall vacancies in the first half, at 10.4 percent, smaller cities such as Pune and Ahmedabad were much higher, with vacancies in Pune at 25.5 percent and Ahmedabad at 34 percent.

Bangalore, often considered the third-biggest retail stop after New Delhi and Mumbai, has added the most retail space this year — 1.5 million square feet. “The retail activity in the city continues to remain strong,” the report observed.

Even with the vacancy rates, Indian retailers continue to expand aggressively. Department store chain Shoppers Stop, for example, has opened 12 stores in the last year and 26 stores in the last three years, with plans to invest $5.3 billion in growth over the next three years. The same is true of global brands.

“Retailers of foreign brands still remain committed to the Indian markets with the recent announcements by multinational retailers indicating the strength of the economy,” Wahi said.

Reliance Brands, for instance, has made several new tie-ups in India and this month unveiled a joint venture with Brooks Bros. Darshan Mehta, president and chief executive of Reliance Brands, said the first stores would open in metro areas, focusing on Brooks Brothers’ core men’s wear, with women’s and children’s wear being added in future. The brand has already been in China for eight years.

Reliance Brands also has joint ventures with brands including Iconix, Ermenegildo Zegna and Diesel.

High mall rental rates have always been a major concern for retailers and, according to Cushman & Wakefield, rental values have largely remained stable, except for certain micro-markets in Bangalore, the New Delhi region, Calcutta and Mumbai. Mall rental rates in these areas have grown over the previous quarter in the range of 2 percent to 13 percent.

The highest growth in mall rental rates has been on Elgin Road in Calcutta, where the last quarter saw an increase of 12.4 percent, mostly owing to renewals of existing tenants at higher rents.

Wahi pointed out that high streets are more in favor with retailers, and this is substantiated by the fact that high streets across many of the big cities have shown a rise in rental value in the same time.

Select locations across Bangalore (including MG Road, Jayanagar, Koramangala and Vitthal Mallya Road) recorded rent increases of 8 to 9 percent over the previous quarter. Camac Street in Calcutta saw the highest increase in high street rentals at 25 percent, followed by MG Road in Bangalore at just over 9 percent. Gurgaon and Pune saw their high street rents rise 7 to 8 percent.

The report noted that in some cities, such as Hyderabad, prominent high streets (Banjara Hills, Jubilee Hills, Ameerpeet & A.S. Rao Nagar) saw a decline in rents of 4 to 7 percent compared to the previous quarter due to significant new construction in those markets.

Hyderabad’s overall mall vacancy rate remained stable at 8.2 percent.

The average rents at Koramangala mall in Bangalore are about 420 rupees, or $7.28 at current exchange, a square foot, up 5 percent over the last quarter, while Elgin Road mall in Calcutta is at 600 rupees, or $10.68, a square foot, up 12.6 percent over the last quarter.

In the New Delhi region, rents at Gurgaon malls are roughly 225 rupees, or $4.01, a square foot, up 7.1 percent in the last quarter.

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