'Ultra-Tight' Inventory Raises Hopes For Top Shopping Malls
Viviana Mall, Thane. (Source: Viviana Mall)

'Ultra-Tight' Inventory Raises Hopes For Top Shopping Malls

A national lockdown to contain India’s first wave of the pandemic shut down shopping malls for months last year. Yet, vacancies at premium commercial properties hardly rose. Landlords don’t see that happening even during the ongoing second surge of Covid-19 that has prompted malls to close again.

Vacancy levels are likely to remain range-bound in the short term despite the second wave, imposition of restrictions and closure of malls across cities, Cushman & Wakefield said in an emailed response to BloombergQuint. The property consultant cited last year's experience when the national lockdown didn't trigger large-scale exits.

Mall owners agree. “There are no significant vacancies that we have seen as of now," Mukesh Kumar, chairman and director on board, Shopping Centres Association of India; and chief executive officer at Infiniti Mall, said over the phone. "Only small retailers who had cash-flow issues may have left but nothing very significant. Major anchor tenants have retained the space.”

India is now facing a much deadlier second wave of the virus that has overwhelmed hospitals to crematoriums, prompting local lockdowns in most the country. For retail outlets in shopping malls, the last month and a half has seen a complete washout.

But according to DLF Shopping Malls, there have been no changes in vacancies across its portfolio. Pushpa Bector, executive director at the mall developer, said, “Before the second wave hit, our businesses had reached 85% of the pre-Covid levels across the portfolio.”

Thane's Viviana Mall has also not seen a rise in unoccupied space, according to Gurvineet Singh, the company's chief executive officer.

While Oberoi Mall declined to comment on BloombergQuint’s emailed queries, Phoenix Mall cited silent period before fourth-quarter earnings. Inorbit Mall has yet to respond to queries.

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Last year's national lockdown was much stricter and completely disrupted business activity. Yet, retailers with space at premium malls in top cities didn't exit in hordes.

Vacancies at superior (Grade A) malls that account for 35-40% of the pan-India inventory remained “ultra-tight” at 2-5% in 2020-21, according to data shared by Cushman & Wakefield.

The property consultant defines Grade A malls as those built by large developers, typically with a leasable area of more than 5,00,000 square feet and are owned by a single entity—a developer or an institution.

Vacancy levels remained largely unchanged in Kolkata, Chennai and Hyderabad in fiscal 2020-21, while other cities saw a marginal increase, according to Cushman & Wakefield data. The space availability in Grade-B malls, however, rose 200-300 basis points during the year. That increased the pan-India vacancy by 100 basis points in FY21.

This marginal increase in the last fiscal stems from exits at largely low-performing and average malls, and a reduction in footprint among a few retailer categories across cities, Cushman & Wakefield said.

And while the property consultant will have April-June data only after the quarter ends, it remains optimistic.

“Retail sales are likely to decline in the short term but recover gradually thereafter as economic recovery and consumer demand gains momentum,” Badal Yagnik, managing director, tenant representation at the consultant, said in the emailed response to BloombergQuint. “Faster vaccinations will be a key driver of business recovery over the next few quarters.”

Moreover, he said, India’s lower mall density than in the Asia-Pacific region and interest of large global investors helps.

That, however, doesn't mean there are no concerns.

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Retailers Seek Relief, Malls Cautious

During the first wave, mall owners offered retailer tenants discounts and waivers and the business bounced back to almost normal during the last quarter of 2020. These discounts had started to phase out just as the second wave struck, stalling business again. Retailers have reached out for help.

“There is no ‘one size fits all’ kind of a solution here. Malls and retailers should work with each other to get things easier,” Kumar Rajagopalan, chief executive officer at Retailers Association of India, told BloombergQuint. “It cannot be that malls say ‘I will charge full rentals’ although the store was shut. The retailer can’t be saying ‘I won’t pay any rental’ because mall has also got its own expenditure.”

The retail sector, however, requires government’s support, he said. “Unless the banks, the Reserve Bank of India and finance minister play their part, adjustments from within the retail industry is hardly going to be enough.”

Even the National Restaurant Association of India has written to mall developers. Among its demands, according to a statement, are revenue share-based rent and no minimum guarantee payments.

Kumar of Infiniti Mall confirmed that retailers approached mall owners with requests for restructuring of rents. “But it’s too early to take a decision as of now.”

Bector also said DLF will take a call before malls reopen.

Viviana Mall waived full rent for five months, and then charged half for an extended period, CEO Singh said. While it will try and work out something once business resumes, Singh said the company may not be able to offer much this time.

“We suffered a lot of loss because of the lockdown and non-recovery of rentals,” Singh said. “We have no capacity left to offer further discounts because our cash flows have completely dried. This time, the banks have also not offered moratoriums… [and] close to 60% of our rental income which goes into the EMI.”

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Outlook For Malls

According to Cushman & Wakefield, landlords will be strategic in offering any discounts given the impact on their revenues since the second quarter 2020. They will factor in tenant profile and scale of operations, a gradual recovery as restrictions ease and declining active caseload, it said.

While leasing activity is likely to get affected and consumer demand will slow down in the short term, stabilising infection rate, easing of restrictions, and wider or quicker rollout of vaccination could drive a gradual recovery in the third and fourth quarters of 2021, it said.

Also read: India’s Covid Vaccine Rate Dropped Sharply In May Despite Opening Up To More People

Cushman & Wakefield expects higher demand from supermarkets, hypermarkets and consumer durables to continue, while leasing in apparel and food and beverages segments would remain below trend.

Despite the near term Covid-induced uncertainty, medium to long-term outlook for Indian shopping malls remains healthy, it said. “Short term disruptions in mall supply is expected but completions could go up quickly in 2022-23 in line with rising demand and given the lack of quality space and tighter vacancies in superior malls.”

Also read: Forget Dying, Shopping Malls Are Thriving In India. Here’s Why

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