Supported by the improvement in trading values on the back of healthy retail sales and contracted rental escalations, the rental income for retail mall operators will increase by 8-10 percent year on year (YoY) in FY2024, a report by commercial banking company ICRA said. In FY2024, trading values are expected to improve by 4-5 percent with healthy sales across product categories like jewellery, electronics, etc., and an increase in spending towards food, beverages, and the entertainment segment, the report added.
Though ICRA's outlook on retail mall operators remained stable, it predicted a rental rate hike by 3-4 percent YoY in FY2024, driven by contracted escalations/lease renewals at higher rates, following healthy occupancy of retail malls.
The rental income for ICRA’s sample set of top six cities witnessed a strong expansion of 78 percent YoY in FY2023 (on a lower base of FY2022) and is higher by 25-27 percent compared to pre-COVID levels, driven by a higher revenue share backed by an increase in retail trading values and increase in occupancy levels, Anupama Reddy, Vice President and Co-Group Head, Corporate Ratings, ICRA said.
The top six cities include Mumbai MMR, Bangalore, Delhi-NCR (excluding Gurugram), Hyderabad, Chennai, and Pune.
Increase in vacancy
While the footfalls in malls touched 90-95 percent of pre-COVID levels in FY2023, trading values recovered to 125-127 percent, backed by an increase in spending per footfall, driven by premiumisation, she added.
The report pointed out that across the six cities, the incremental supply stood at about 7 million square feet (msf), against the net absorption of 4 msf, resulting in an increase in vacancy levels to 19 percent in FY2023 from 16-17 percent in FY2021-FY2022.
However, it said that despite healthy leasing, vacancy levels are expected to remain between 18 and 19 percent in FY2024.
Consumer confidence continues to recover from the historic low recorded in June 2020. As per RBI’s Consumer Confidence Survey of May 2023, household spending was buoyant over the last year on the back of higher essential and non-essential spending. This is expected to support retail sales for the tenants of mall operators, the report concluded.