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High rents, poor business trigger exodus of F&B brands from Delhi’s Khan Market

Stringent social-distancing norms, rising infections and failed rent negotiations see businesses exit India's most expensive retail location.


India’s most expensive high street and Delhi’s toniest shopping district Khan Market is seeing big names shutter shop as the lockdown eats into the restaurant and bar business.

Just a few days ago, bookshop chain Full Circle and Cafe Turtle shut down their flagship store after 15 years. Restaurants such as Side Wok, Smoke House Deli, and Smokey’s are also on their way out.

“The main issue was of high rent. We did try and negotiate with our landlord but nothing worked out. The economics, too, did not work out, we had to manage operating costs, salaries and so we took this tough decision to move out,” Priyanka Malhotra, director, Full Circle, told Moneycontrol.

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Experts say economic uncertainty, social-distancing norms and failed rent negotiations are the reasons businesses are moving out of the market that was set up in 1956 to rehabilitate some 70 refugee families from Pakistan. They could rent a shop for Rs 50 then.

Rated as India’s most expensive retail location, the cost of built-up space and lease is high in Khan Market. With a premium on space, most of the restaurants and bars that are tightly packed will struggle to be viable while following the social distancing norms.

The average rent for restaurants and bars on the first and second floors is between Rs 6 lakh and Rs 8.5 lakh a month in the market ranked as the world's 24th most expensive retail location by real estate consultancy firm Cushman & Wakefield earlier this year.

“During the COVID lockdown, the shops which were on lease would have found it extremely tough to pay the rent unless they were exempted by the landlord. However, shops which are self-owned would find it easier to tide over this tough period,” said advocate Yudhist Singh, Senior Partner, YNS & Associates.

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Some of the eateries have asked for the rent to be halved along with a two-month waiver on account of the lockdown. While some property owners have agreed to higher concessions, others have not been amenable.

“As a brick and mortar bookstore, it is even harder now for us to sustain the business. We were lucky in case of our Nizamuddin and Greater Kailash stores, where landlords were fine with not charging us rent during the lockdown and also reducing the rent,” said Malhotra.

They have moved to Meherchand Market in Lodhi Colony, another tony neighbourhood, a few kilometres away “at one tenth the rent”. Along with Full Circle, a children’s book store is also planned.

“We will wait and watch before reopening the restaurant,” she said.

They were offered a 60 percent discount but they wanted 80 percent, Ramesh Parchani, who owns Full Circle and Cafe Turtle space, told Moneycontrol.

“I had also suggested that they don’t pay rent for another 10 months and when they leave at the end of the year (the lease was to expire in 2021), I will deduct it from their security deposit but they wanted an 80 percent deduction for 10 months and a rent waiver for two months of the lockdown.”

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Parchani said he was willing to bring down the annual rent from more than Rs 1 crore to Rs 39 lakh. He also suggested staggering payment--Rs 1 lakh in April, May and June; Rs 3 lakh in the second quarter; Rs 4 lakh in the third quarter and Rs 5 lakh in the fourth quarter by when business would have resumed.

He offered similar terms to Smoke House Deli but “they, too, have decided to move on”, Parchani said.

However, Lenskart, another tenant, is staying put after negotiating a 40 percent cut in the rent for nine months. “They had asked for a 50 percent cut but since shops have not been hit as much as restaurants and bars, I agreed to a 40 percent reduction for nine months,” he said.

Parchani has no immediate plan to rent out the spaces vacated by two restaurants. “Everybody is looking for distress deals and there is no point scouting for tenants. Hopefully, the tide will turn in a few months,” he said.

While tenants are of the view that their businesses would not be sustainable without a rent waiver, landlords think the demand I “unfair”, given the high property taxes the area commands.

Sanjiv Mehra, who has been the president of the Khan Market Traders' Association for almost two decades and owns four stores in the market, said New Delhi Municipal Council would not lower the property tax on account of coronavirus or the rent not being paid.

“If a property remains vacant for six months, the landlord has to inform the corporation within 15 days of the premises getting vacated to seek an occupancy relief,” he said.

When tenants ask for a rent waiver, the burden of paying property and income taxes fell on the landlord, Mehra added. A tax of around Rs 2 lakh a month is made out for a first or a second-floor property, he said.

And, then there is an outbreak to grapple with.

The lockdown might have eased but not the virus. Delhi has seen a huge spike in cases in June, taking the number of confirmed infections past 34,000.

Shoppers virtually disappeared after deputy chief minister Manish Sisodia said the national capital would have 5.5 lakh COVID cases by July end, Mehra said.

“In the last three days, we have done less than 2 percent business. It is so dull that you can play cricket in Khan Market’s parking lot. Not only are shopkeepers losing business, the government, too, is losing on revenue,” he said.

Parking has been a huge problem in the market, with weekends a nightmare.

“Social-distancing norms and rigid sanitation rules are forcing restaurants to reconsider their plans. Bar sales are a big component of their business and that does not exist, which may force more restaurants to shut down,” he said.

The government banned the sale of liquor when it allowed restaurants to reopen. The COVID-19 norms that include strict hygiene and regular sanitisation could add another 20-25 percent to operating costs.

“This hits F&B the most because there is no income and these measures have to be implemented before clients walk in,” said a consultant, who didn’t wish to be identified.

Most of the first and second-floor outlets were residential properties. They were converted into commercial areas on payment of a fee that ranged from Rs 50 lakh to Rs 1.25 crore.

“Several owners have taken loans to get this conversion done. With no rents coming in during COVID and tenants asking for waivers, how is the landlord supposed to repay the debt?” the consultant said.

There are 156 shops and 45 restaurants on the first and second floors of the market. On the ground floor, 75 shops are owner-run.

According to property consultants, the ground floor shops commands a rent of around Rs 1,400 per sq ft and the first and second floor Rs 1,100 to Rs 1,200 per sq ft.

Since the lockdown, these rents have come down by almost 20-25 percent–depending on the brand, they say.

“Some landlords have even considered more than 45 percent discount but this cannot be generalised and varies on a case-to-case basis. Most tenants are renegotiating, keeping a one year window in mind,” said another consultant on condition of anonymity.
First Published on Jun 12, 2020 12:28 pm
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