New mall addition slows down despite rise in net absorption across India

Even as net absorption in retail malls across the country is rising, rate of new mall addition has slowed down in the first half of the calendar year 2018. According to real estate consulting firms, while vacancy levels will continue to fall, the industry is likely to see some consolidation with developers opting for only large format retail destinations amidst rising e-commerce penetration.

The latest H1 (first half) 2018 report by JLL India has pegged the growth in net absorption of retail malls by over 75 per cent on a year-on-year (Y-o-Y) basis as compared to H1 of 2017. Net absorptions have risen from roughly one million square feet (msf) in H1 2017 to 1.9 msf in H1 2018. However, new mall completions or supply has fallen by 25 per cent in the said period, to close at from 2.143 msf in H1 2018, down from 2.88 msf in H1 2017.

Interestingly, among the top seven cities, the metros of Mumbai and Delhi saw a substantial fall in new mall completions, down from 0.8 msf to 0.12 and from 2 msf to 0.385 msf, respectively.

As a result, according to Ramesh Nair, CEO & Country Head, JLL India, the retail scenario in India has begun showing signs of maturity, by concentrating on malls that will have longevity and have scope of refurbishment and renovations in the future. "Therefore, developer companies are now creating retail destinations rather than mere shopping centres. In the next few years, we will see a concentration of large format malls that will allow shoppers a variety of experience beyond purchase," said Nair.

A case in point is Phoenix Mills Ltd (PML) which has over 4.6 msf of retail destinations under development in Pune, Bengaluru, Ahmedabad, Lucknow and Indore. However, except for Ahmedabad which will be 0.6 msf, all other development will be around 1 msf developments and expected to become the preferred district consumption hubs for the cities that they are present in, Shishir Shrivastava, Joint Managing Director, The Phoenix Mills Limited told Business Standard.

"Malls or shopping centre real estate has stagnated over the years due to the advent of the eCommerce market and the dearth of quality good mall supply," a Knight Frank spokesperson told Business Standard while adding, "Going forward, mall retail will not work if its treated in isolation. With the ease of eCommerce, shopping centres will have to evolve as retail destinations to attract and hold the customer. Retailers and developers will have to provide for more than just a shopping experience to the customers, and strive for not just creating a shopping centre but a 'shoptainment' centre."

Seconding this is Shrivastava who stated, "Malls today are not just meant for shopping but they have evolved into destinations where families can spend their full day for entertainment & leisure. At PML, as owners and operators of our malls, we endeavour to provide our customers with the best experience by constantly upgrading our properties giving them a contemporary look and feel."

For now, vacancy levels are coming down in the wake of malls under development getting completed. For instance, as per a recent Cushman & Wakefield report, mall vacancies remained low in the sub-10 per cent category in many cities in the second quarter of calendar year 2018. The report pegs current mall inventory across 8 cities at 232 malls, spread across 81.26 msf, registering a 16 per cent increase compared to last 3 years.

Going forward, JLL India has estimated fresh supplies of 3.7 msf for the next 6 months of 2018 (July – December) in the top 7 cities of the country. Of these, Hyderabad is expected to see the highest volume of 1.8 msf. followed by Delhi at 0.715 msf, Chennai (0.511 msf) and Bangalore (0.5 msf).