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High rent, low footfall: Is COVID-19 playing party pooper for high-street retailers in Lower Parel mill area?

Tenants planning to move out are willing to compromise on the size because the rents are too high and it is difficult for them to sustain in these times as footfalls are few and far between.

July 01, 2020 / 01:51 PM IST

If one were to sift through advertisements doing the rounds in the social media these days, one will find dime-a-dozen ads on vacant retail spaces being available in the mill area in Lower Parel. There are several options available for the buyer to take a pick. There’s a 4,300-sq ft space ‘best suited for a lifestyle store’ to a 10,000-sq ft space that could be occupied by someone as niche as a pink marble dealer. So, is COVID-19 playing the party pooper?

Real estate experts told Moneycontrol that rentals for standalone retail spaces in the Lower Parel area certainly have come down post the pandemic. “Rentals have come down at least 15 percent to 20 percent from their pre-COVID peak,” says Arif Lalani, director, Urban Investments and LJ Housing and Partner in Metro Infra.

For starters, most landlords in the Lower Parel area have been amenable and have agreed to a 15 to 20 percent reduction in rentals but there are some who have not and that’s what is forcing tenants to move out and look for options in Bandra, Fort area or an alternative mill compound in Worli.

“Standalone outlets that comprise start-ups, furniture stores, marble stores and design stores which are not brands are finding it difficult to survive in these COVID-19 times as everything has become competitive due to heavy dependence on e-commerce. As many as 30-40 percent businesses, that have decided to move, are relocating to areas where the rent is almost half. They are also willing to reduce the floor plate by 50 percent,” says Lalani.

Rentals for retail space in the mill compound such as Raghuvanshi Mills area ranges from Rs 200 per sq ft to Rs 800 per sq ft. In Bandra, rents for retail spaces are anything between 300 per sq ft to Rs 600 per sq ft.


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“Tenants who are planning to move out are willing to compromise on the size because the rents are too high and it is difficult for them to sustain in these times as footfalls are few and far between,” he said.

Also, very few international brands are currently relocating as property owners are open to renegotiating terms with them as they would not want to lose out a tenant in the current circumstances. “Besides, brands have not been too badly impacted as they have gained from rupee depreciation against the US dollar,” says Lalani.

A high street retail space in Lower Parel can set you back by Rs 600 per sq ft, which means that a 1000-sq ft shop commands a rent of Rs 6 lakh while in Bandra it would cost around Rs 3 lakh.

Also, in the present market, there are takers for 5,000-sq ft retail spaces because there are tenants wanting to downgrade from a 10,000-sq ft space to a lesser floor plate. However, any retail space which is above 10,000 sq ft is unlikely to get any traction, say retail experts.

“Most retailers dealing with niche items and lifestyle products are willing to move to a smaller space because they are interested in having a Lower Parel address at this point in time and they need a place to store their unsold stock. As for footfalls, they are focusing on branding and selling their products through the online platform. Every retailer in town is considering options,” Lalani points out.

The market which is likely to get impacted the most during the pandemic is retail destinations such as the Raghuvanshi Mills compound in Lower Parel, which is the one-stop shop for home improvements, for fit-outs, home décor, tiles, kitchens, lighting, accessories among others.

“Some stores that are not doing well have realised that the next six months may be difficult. Retailers are not looking at business improving before three to six months. More exotic the store, more acute is the problem,” says Shubhranshu Pani, MD - Retail Services, JLL India, adding that while regular products may be doing well, a premium pink marble store may be facing its own share of problems.

The vacated floors in the area have to be replaced by an equally niche category occupier dealing in interiors, furnishing, marbles, tiles, kitchen players, marble stores, artefacts, candle making, or wrought iron – anything that is considered exotic for renovating a home.

Tenants who deal with such lifestyle products would not necessarily take up space in shopping complexes. A place such as Raghuvanshi Mills is akin to a shopping destination such as the Qutub area in Delhi, explains Pani.

Another important issue here is that if a tenant decides to close a store, he would not be in a hurry to open another one anytime soon. The objective of closing down in the present circumstances is to reduce losses. Anybody who is taking up a new space is doing with the purpose of reducing rentals and will be open to contraction in space, he says.

Alternatives for relocation could be Bandra where the rents are around Rs 400 per sq ft or Andheri, South Mumbai or Fort Area where the rents would vary from Rs 400 to Rs 450 per sq ft.

Most tenants currently function out of stores that are around 8,000-10,000 sq ft and if they decide to move to any other location, they would not take up space more than 2,000 sq ft to 3,000 sq ft or a double floor if it is available, he says.

Lock-in period has come down

Most tenants during the pandemic are going in for a one-year lock-in period compared to a three-year lock-in earlier, retail experts said, adding this is due to the overwhelming uncertainty that prevails in the market today.

“Contracts too have an inbuilt force majeure provision or the pandemic clause built into them which was not the case earlier,” they say.

Rent reduction may continue

Retail experts are of the opinion that the retail segment is severely impacted compared to office spaces post the pandemic.

“Nobody is going shopping right now. Given the government-led restrictions and self-compliance, discretionary travel and expenses are low. Plus the presence of home-delivery online portals such as Amazon and Swiggy has ensured that essentials and a few discretionary spends are delivered at your doorstep. Therefore, one does not see a strong urge among consumers to return to malls and high streets. That’s also because there is no clarity on when the pandemic is expected to end,” says Abhishek Kiran Gupta, chief executive officer of real estate intelligence firm CRE Matrix.

Besides, considering that the pandemic is to continue beyond December 2020, there may be a 5-7 percent reduction in rent every quarter which amounts to about 15-20 percent reduction in a year, he says.

“We believe the landlords will empathise with the shut-down difficulties faced by retailers and will oblige with a notable cut in rentals. Also we believe these notable cut in rentals are likely to be temporary in nature and might revert back to original rentals once the pandemic stands defeated,” he adds.

A few months ago, ICRA rating agency had ranked the retail segment as ‘high risk’ and ‘negative’ and said that it would be the most impacted by the pandemic

“This underscores the aspect that these sectors are more vulnerable to business disruptions caused by the pandemic, and accordingly, the credit quality of entities is likely to be more impacted than other sectors,” it had said.

An analysis by ICICI Securities had also said that the Indian retail sector is facing unprecedented circumstances owing to the COVID-19 outbreak leading to nationwide lockdown by the Centre as well as several state governments.

“Given the magnitude of COVID-19 impact in India till date, especially in high revenue-generating urban zones, we anticipate the situation may not ease until the festive season. Hence, we bake in revenue disruption for the next six months. Gradual store openings may witness limited operations owing to supply disruptions and implementation of social distancing norms,” it had said.
Vandana Ramnani
first published: Jul 1, 2020 12:51 pm

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