Rising retail space vacancies in cities, small towns
New Delhi: Retail market in prime cities and boom towns in India are witnessing gloomy prospects as the number of retail space vacancy levels is rising. Excess supply of retail space has been recorded in smaller towns while the demand is very less because of which these boom towns haven’t seen any huge consumption story yet.
Real estate consultant Jones Lang LaSalle reports that the vacancy levels in malls across India are growing at an alarming rate. Over a third of the space in smaller towns is lying unoccupied, as against just 7 percent in 2007. Supply of retail space has increased dramatically as many developers had overestimated the need for retail spaces, but demand from retailers and overall consumption have dropped.
Lack of disposable income of the young generation and market slowdown are the major factors that have led to the scenario, opine experts. For instance, the owner of Amravati’s J&D Mall in Vidarbha says that though every evening the mall witnesses the town’s youngsters gathering around malls, they do not spend much. He said that he is even planning to lease retail spaces to offices and banks as it is being difficult to lease out space to retailers since almost half of the mall space is lying vacant. Rajesh Shukla, founder director of NCAER Centre for Macro Consumer Research, says that the youth account for 60 percent of mall consumption. But youngsters residing in small towns cannot afford to buy expensive items because most of them have to depend on their elders who are the decision-makers.
The Prozone CSC mall in Aurangabad, that started two years ago, has a fourth of its space unoccupied even though Jaguar Land Rover recently opened a showroom in it.
Delhi-NCR has witnessed 92 percent fall in the Jan-Mar 2013 quarter, which is the lowest absorption in the last 15 quarters. According to Jones Lang LaSalle, the net take-up was around 50,700 sq ft, of which 83 percent was contributed by the suburbs.
Inspired by the retail market’s growth in the mid- 2000s, several developers constructed many of the malls which have accounted to huge vacancy levels.
Many of these malls in small towns were constructed by builders, who got carried away by the good times of the mid-2000s, but were caught napping when the slowdown hit them in 2008. Malls built by Delhi-based builder Supertech in Meerut, Haridwar and Rudrapur have been facing poor occupancy levels.
Leading retailers like Kishore Biyani (Big Bazaar) prefer standalone stores than malls in small towns. Biyani is of the opinion that these locations do not have many good malls and includes high maintenance charges. Last year, Big Bazaar had closed down two stores in Meerut and Ludhiana as they were located in malls that were far away from the city and failed to attract consumers. So they opted to relocate to town centres.
Forever 21 has leased 11,000 sq ft in DLF Courtyard in Saket while Kenneth Cole New York and ALT leased 2,000 sq ft each in Ambience Mall in Vasant Kunj. Reliance Digital leased 8,099 sq ft in Ansal Plaza and Haze leased 3,000 sq ft in Westgate Mall in Rajouri Garden. Other deals in this submarket were generally smaller sized leases.
Even though the per capita income in small towns is increasing, it is not translating into consumption of branded items in the same proportion. Since the population is less in small towns, they do not provide economy of scale for retailers, as against large towns. Metro cities offer better return-on-investment (RoI) due to which foreign direct investments stay in the metros.
The centre has recently opened up multi-brand retail to foreign investment hoping that the move would bring in investments across the farm-to fork sector, unleash consumer spending and spur demand. However, stringent conditions and a lack of clarity about the policy have ensured that foreign multi-brand retailers like Walmart and Carrefour are yet to announce their India plans.
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