Several listed developers, including Brigade Enterprises and Prestige Group, are increasingly incorporating their upcoming mall portfolios within integrated townships rather than opting for standalone retail malls.
Industry experts say this points to a change in retail real estate where shopping malls are evolving as a part of a larger ecosystem that provides a ready catchment of consumers and increases the chances of sustainability of the asset.
Prestige Group, which plans to develop 9 million square feet of malls within the next three years, will have the majority of its malls within the upcoming integrated townships, Muhammad Ali, CEO of Retail previously told Moneycontrol.
While this picture remains the same for Brigade Group, other developers like Gopalan Enterprises have started repurposing their mall portfolios to convert them from retail spaces to integrated malls with co-working hubs. “With high rental yields in the first two floors, we have retained retail spaces while the upper floors will consist of managed working spaces,” Dr C Prabhakar, managing director, Gopalan Enterprises, said.
Experts say standalone malls require strategic locations in the city, to drive profitability, and have high maintenance costs.
Ghost malls increasing in India
The shift comes at a time when ghost malls (with occupancy of less than 40 percent) across India saw an almost 60 percent surge to 13 million square feet just between 2022 and 2023.
While there was a 238 percent year-on-year increase in the gross leasing area of all shopping centres in prime Indian markets in 2023, the number of ghost malls rose to 64 from 57 in 2023, according to data shared by Knight Frank India.
Industry analysts said the trend of rising ghost malls reflected weak consumer demand and could lead to job losses and economic dislocation, particularly for small retailers and service providers. Private consumption, accounting for 60 percent of India's gross domestic product (GDP), has remained weak, rising 3.5 percent year-on-year in the last quarter of 2023 while the economy grew 8.4 percent.
In the top eight cities, including Delhi, Mumbai and Bengaluru, the total number of shopping malls declined to 263 in 2023, with eight new retail centres added and 16 shut down.
Integrated townships boost retail
Anuj Kejriwal, CEO & MD – ANAROCK Retail said that the primary factor is the catchment-driven sustainability of the asset. “If the mall has a potentially strong catchment and infrastructure to sustain in a standalone scenario, then the same works. The underlying principle behind having a mall in an integrated township is the same only, i.e. a dedicated catchment,” he said.
However, it doesn’t guarantee success as the outcome is based on the strength and engagement levels of the catchment and not only on the malls, Kejriwal added.
According to local brokers, local developers continue to drive standalone mall portfolios in metro cities like Bengaluru. "Several developers like Aishwarya Developers, which is converting buildings into malls in Bengaluru, have come into the mall business. The rental yield of such retail spaces is about 7-8 percent providing developers with major profitability," Kiran Kumar, vice president of Hanu Reddy Realty, said.
Additionally, rentals in malls inside the integrated townships continue to remain higher than the standalone ones due to the add-on value it provides to the project.
Changing revenue models of standalone malls
Indian retail has moved into a consumption-based mode. According to JLL India, mall rentals in most locations are high, and minimum guarantees in the first couple of years are always above revenue share.
This brings into play the retailer's ability to pay therefore, the revenue share does not kick in over the short term.
Profit sharing, also known as revenue sharing, is a model in which retailers pay a percentage of their store revenue to the mall developer instead of a flat lease rate.
Revenue share usually becomes a factor after 3 months to 3 years of active tenancy, depending on how the centre is priced during its initial leasing.
"Good retailers take the benefit of a reduced minimum guarantee, thus reducing their fixed cost and thereafter ensuring that they deliver superior returns by reaching revenue share and sharing the upside with the landlord," JLL said.
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