As business activity in physical retailing took a hit during COVID-19 pandemic, the average monthly rent in Connaught Place, Khan Market and South Extension I and II declined 14 percent during the July-September quarter compared to the same period last year, a report by Cushman & Wakefield has said.
The average retail rent in Khan Market during the third quarter of 2020 was Rs 1,200 per square feet a month. Similarly, the average retail rents in Connaught Place and South Extension I and II were Rs 900 and Rs 600 respectively.
The average retail rents in Gurugram’s Sector 29 and Noida – Sector 18 fell by 23 percent and 28 percent respectively.
Retailer churn was witnessed in a number of malls with reshuffling of spaces and even downsizing of existing occupied space in a few cases.
Rental negotiations continued amidst an uncertain business environment
Renegotiations continued to remain a key feature in retailer – developer conversations as the business activity in physical retailing has taken a severe hit due to the pandemic, and many retailers have explored the e-commerce route where success has been better.
Also Read: High rents, poor business trigger exodus of F&B brands from Delhi’s Khan Market
Partial rent waivers and staggered rental payments for different periods already offered to retailers by some large mall operators in the city are being agreed for new transactions as well, albeit with a short-term view.
Liquidity challenges of retailers and financial obligations of landlords underscore the need to arrive at mutually agreed terms on both sides to tide over the challenging situation presented by COVID-19.
While retailers continued to demand rental rebates and explore pure revenue share arrangements in a time of sluggish sales, mall owners are looking at this as short-term for the next 6-9 months, while also asking for increased rents beyond a certain time and a higher lock-in period commitment in return, the report said.
Festive season may aid recovery
As malls reopened in a gradual manner, some retail activities were however, observed with new store openings of 0.39 msf across malls in Delhi-NCR, which included new space take-up as well as retailer churn. Around 0.03 msf of leasing was also recorded in key main streets.
The upcoming festive season is likely to aid the recovery, even though the road forward for the sector is still difficult. This is an opportune time for retailers, especially hypermarket and department stores who are looking to expand and acquire strategic spaces, to close transactions at attractive rents and on preferred terms.
However, the city did not record any new supply addition during the quarter and mall vacancy declined by 60 bps quarter-on-quarter to 16.1 percent.
Even though retailer exits were recorded in some malls, especially in cases of inconclusive renegotiations and severe business losses, new stores becoming operational in a recently completed mall in Gurugram largely contributed to the fall in vacancy.
Usual retailer activity levels will take longer to return even as the existing stores which opened saw lower footfalls and consequently sluggish business volumes, it noted.
Conversion rates were higher as need-based and specific purchase activity headlined customers venturing into malls.
Leisure activities and impulse purchases have taken a hit as average time spent by visitors in a mall has reduced in comparison to the pre-COVID scenario.
Khan Market saw transactions by designers including Ritu Kumar, Ranna Gill in a market scenario where closure of key F&B outlets has softened rents to some extent, thus allowing retailers to take advantage of this likely short-term disruption. Apparel and lifestyle segment retailers including American Eagle, Levi’s, Madame, Meena Bazaar, Tommy Hilfiger, Aurelia opened new stores or reshuffled their spaces in some malls as part of space optimization and strategic store openings.
Japanese retailer, Uniqlo continues its expansion in the city with three stores across Delhi, Gurugram and Noida scheduled to open in the coming quarter. A few F&B brands including Starbucks and Dominos opened new stores in Gurugram during the quarter, the report said.