Commercial & Industrial Property News Update
India - Sluggish Growth Forces Mall Developers To Scale Back Plans
July 31, 2012
With economic growth at its slowest in nine years, mall developers in India cut plans against a backdrop of sluggish consumer spending.
At 1.13 million sq ft, Phoenix Market City is the largest shopping mall in Mumbai, one of the world's most crowded cities. Yet, launched eight months ago, only two-thirds of its 320 stores have been taken up and foot traffic is thin.
"We are holding back on new store openings and focusing on our existing stores," said Ramesh Tainwala, chairman of Planet Retail, which has leased shops in Phoenix Market City. Planet Retail specialises in global retail brands including Body Shop, Next, Nautica and Debenhams.
"We are shutting down some of our stores in areas where rentals are too high, and with the slowdown in consumption complicating things further," he said, adding that rent renegotiation with landlords is also in the process.
Phoenix Market City stands as a testament to the dire state of India's retail sector, which is suffering from anaemic consumer spending as economic growth fell to its lowest in nine years for the third-largest Asian economy.
According to Euromonitor International, consumer spending is forecast to grow by just 5.7% this year - a troubling level for a domestic demand-led economy such as India. In contrast, consumer spending surged by 24% in 2010.
Nationwide retail vacancy is estimated at 20%, and is forecast to grow to 25% by 2014, said Jones Lang LaSalle (JLL), as retail floor space breaches the 100-million-square-feet mark from the 66 million now. Unorganised one-off shop still dominates retail in India, with more than 90% of shopping done through them.
Developers are delaying project launches in lieu of the difficult market situation - of 12 million sq ft planned this year, only 60% will be launched, said JLL.
Among the projects held back is the proposed 4.5 million sq ft Mall of India from DLF, India's largest property developer. On hold since 2008, the mega development in Gurgaon would add 2 million sq ft of space to the retail market, making it India's largest.
High vacancy rates (more than 25%) in fast-growing cities such as Ahmedabad, Pune and New Delhi are exerting downward pressure on rents, which are estimated to be down 30% to 40% from peak rates in 2008.
"There is stress on the business model. It is getting a bit expensive. Real estate prices and construction costs are rising but the retail business is not growing enough to absorb this," said Kishore Bhatija, chief executive officer of InOrbit Malls. Bhajita added that projects are taking longer to break even - up to 10 years from the seven or so in 2008.
Tags: Shop for rent, Commercial units
At 1.13 million sq ft, Phoenix Market City is the largest shopping mall in Mumbai, one of the world's most crowded cities. Yet, launched eight months ago, only two-thirds of its 320 stores have been taken up and foot traffic is thin.
"We are holding back on new store openings and focusing on our existing stores," said Ramesh Tainwala, chairman of Planet Retail, which has leased shops in Phoenix Market City. Planet Retail specialises in global retail brands including Body Shop, Next, Nautica and Debenhams.
"We are shutting down some of our stores in areas where rentals are too high, and with the slowdown in consumption complicating things further," he said, adding that rent renegotiation with landlords is also in the process.
Phoenix Market City stands as a testament to the dire state of India's retail sector, which is suffering from anaemic consumer spending as economic growth fell to its lowest in nine years for the third-largest Asian economy.
According to Euromonitor International, consumer spending is forecast to grow by just 5.7% this year - a troubling level for a domestic demand-led economy such as India. In contrast, consumer spending surged by 24% in 2010.
Nationwide retail vacancy is estimated at 20%, and is forecast to grow to 25% by 2014, said Jones Lang LaSalle (JLL), as retail floor space breaches the 100-million-square-feet mark from the 66 million now. Unorganised one-off shop still dominates retail in India, with more than 90% of shopping done through them.
Developers are delaying project launches in lieu of the difficult market situation - of 12 million sq ft planned this year, only 60% will be launched, said JLL.
Among the projects held back is the proposed 4.5 million sq ft Mall of India from DLF, India's largest property developer. On hold since 2008, the mega development in Gurgaon would add 2 million sq ft of space to the retail market, making it India's largest.
High vacancy rates (more than 25%) in fast-growing cities such as Ahmedabad, Pune and New Delhi are exerting downward pressure on rents, which are estimated to be down 30% to 40% from peak rates in 2008.
"There is stress on the business model. It is getting a bit expensive. Real estate prices and construction costs are rising but the retail business is not growing enough to absorb this," said Kishore Bhatija, chief executive officer of InOrbit Malls. Bhajita added that projects are taking longer to break even - up to 10 years from the seven or so in 2008.
Tags: Shop for rent, Commercial units
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