Mall owners focus on space fillers

Published: July 27, 2009

AHMEDABAD: Mall vacancies in major retail destinations such as Delhi, Mumbai, Pune and Hyderabad climbed between 5% and 15% in June 2009, even as developers rewire their strategies to sustain cash flows. During the past six months, developers juggling with various revenue models have discovered to their relief that certain “flexible” formats like ‘minimum guarantee’ and ‘revenue sharing’ have picked up steam.

“Riding on a 30-40% annual rental growth in 2006 & 2007, and strengthening consumerism, developers in India planned and began constructing malls in dozens. A rental correction of 30-35% from the peak in 2008 was not able to entice retailers, leading to several malls becoming operational in the first six months of 2009 at high vacancies,” says Abhishek Kiran Gupta, head — research of global real estate consultancy firm Jones Lang LaSalle Meghraj (JLLM). According to Mr Gupta, the mall vacancies have continued to increase between 5% and 5% in retail hotspots like Delhi, Mumbai, Pune, Bangalore and Hyderabad.

“Select malls like Inorbit and Forum Value Mall in Bangalore, along with Select City Walk in New Delhi, have shifted to a combination of minimum guarantee and revenue sharing models, accompanied by a performance clause in the agreement. Depending on the format of the store and the tenant, the revenue-sharing terms are decided,” Mr Gupta says, adding, “Such flexible revenue models are highly acceptable to the retailers as the risk is shared between the real estate owner and the retailer. Also, it makes the developer more accountable for generating footfalls and conversion rates in the mall. For the developer, it reduces the risk of high vacancy in the mall while counting on the probability of better revenues in future.”

Similarly, developers like the Entertainment World Developers Pvt (EWDPL) are in the process of constructing 20 such malls based on the revenue-share model across India. Gaurav Marya, the president of franchise solution company, Franchise India Holdings, says, “The revenue sharing model, where developers don’t charge rent and accommodate more local retailers into the malls, including local brands, can encourage a seamless model benefiting all the stakeholders.”

Retail consultant, Mr Wahid Ravji chips in: “The revenue-sharing model existed on the international retail scene, but has come very late to India. Most of the big deals finalised between retailers and mall developers are now on the revenue-sharing model. This model works well for both. Retailers now do not wish to shell out more than 4-5% of sales as rent, compared to the 10-11% they used to pay till a year ago.”

According to Mr Ravji, the model will ensure that the mall developer continues to remain “interested” in the property and there are enough retailers in the mall to attract significant footfalls.

Source: Economic Times

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