Shopping malls growth in India slows as builders avoid retail sector

Moneycontrol News

Construction of shopping malls is seeing a slowdown as the developers are wary of prolonged gestation periods, slow rental growth and lack of prime land parcels, reports Livemint.

Over the past four years, the development of malls has hit a slow lane with only a handful of developers continuing to build premium retail     spaces even though there was low penetration of modern retail, retail consultants and developers told the newspaper.

According to a report by property consultant JLL India, the share of retail development in overall commercial space has fallen to 22 percent from 41% in 2009, the year for which the latest data is available.

Out of the total 74 builders that were active in the retail real estate in 2005, only five builders including DLF, K Raheja Corp and Phoenix Mills have consistently performed and delivered premium shopping malls, while the rest have either exited or stopped expanding.

Before the global financial crisis in 2008, 74 developers launched retail projects across the country as economic activity was robust during that period. However, the number gradually slipped to 63 in the 2008-11 period, and during 2012-16, only 45 developers completed their retail projects, Ashutosh Limaye, head of research, JLL India told the paper.

“Post global financial crisis, we went into a consolidation mode. We shifted our business model to leasing rather than doing strata sale. We understood that holding and controlling the asset for superior customer experience and tenant is the way forward,” Pushpa Bector, Executive Vice-President and Head, Premium Malls, DLF Utilities told the newspaper.

DLF Utilities currently operates five shopping malls with occupancy levels of 95-97 percent.

“Across these three phases - good, bad and rebuilding period—only a few business houses had the capability and intention to be in this business. Not all developers have the expertise to manage a large mall,” Limaye said.

The retail space fell by 300,000 sq. ft for the first time in the country as several malls closed and few opened last year. Last year, five malls shut down while about 10 malls transformed to offices, educational institutes, shopping clusters, hospitals and banquet halls, the report said.

In addition, Limaye said that the rental growth fell sharply at 3 percent in the last three years increasing the vacancy across prime shopping malls across in major cities now to 9 percent.

Even one of India’s best performing malls Select CityWalk in New Delhi, which has an occupancy level of 99 percent, has not expanded in the last one decade.

“We have been around for the last 10 years but the whole 10 years have been extremely choppy in terms of the world economy and in terms of the financial crisis. And unfortunately, the asset prices of land and real estate in the country are still artificially high,” Arjun Sharma, Director, Select CityWalk, told the paper.

However, Sharma added that the company is looking for opportunities to buy land parcels to build more malls particularly in the National Capital Region (NCR) and western part of the country.

High land and property prices as well as right infrastructure projects are among the major concerns for the developers.

“Announcements of new projects have been very slow. Most of the projects which were launched in the last seven to eight years are largely the projects which were announced in 2004-05. It’s largely to do with non-availability of land parcels and good infrastructure connectivity,” Rajneesh Mahajan, Chief Executive Officer, Inorbit Malls, part of K Raheja Corp told the paper.

InOrbit Malls, which launched its last mall in 2013, recently turned one of its malls in Pune into a business centre. The company now runs four malls with a total retail space of over 3 million sq. ft.

Long gestation period of around 8-10 years to build and turn around a mall also makes the business unviable for most developers, Mahajan added.