In India, past few years have seen, across regions and in both metros and smaller cities, several malls being launched which are over one million square feet. Some of these projects have recently become operational and many are in various stages of construction.
Such large projects were launched considering the success of large format malls in the US, Europe, Middle East and South East Asia. The logic provided during such project launches was that if such formats can be successful internationally then why not in India. It is now being observed, however, that vacancy level in many of these large malls continues to be a cause for concern. Also, some projects have been delayed due to reduction in total planned area.
Does Indian real estate market have sufficient retailer demand to make such large malls successful or would these decisions prove costly for investors/ developers?
A quick overview of two one million square foot plus operational malls in the Delhi region brings to light the following interesting facts:
Vacancy levels vary from 5 to 16 per cent, this means, about 50,000 square feet to 160,000 square feet of space is currently without any tenant. The higher percentage is in a project, which has been operational for about a year only. So, we can assume that developers in India of such large projects should expect leasing to continue for at least one to two years after making the project operational. Another reason to suggest caution is that both these projects were committed and launched when the market was in a far better condition as compared to what can be expected in the next four quarters.
As the multiplex and food court get pushed to the third floor, the second floor in the project witnesses the highest vacancy. Hence, projects under planning and leasing need to focus on and be innovative regarding the trade-mix on the second floor.
It can be assumed that five per cent vacancy in large projects is needed to make sure that there is sufficient liquidity in trade and tenant mix. This change can be needed as per changing demographic and market conditions, however, vacancies above five per cent could pose a challenge to mall managers.
While comparing the above two projects, it should be highlighted that one of the projects had an excellent location and access to exceptional catchments. However, neither had a first mover advantage in either of the micro markets they have become operational. It would only be fair to compare their performance (1) in another year when both have been operational for at least two years and (2) after the first lease terms for initial tenants have been renewed. In case of point 2, amount of churn should also be analysed, i.e. how many initial tenants called it quits and were replaced with what type of new businesses.
We are yet to see the emergence of local culture or architecture in mall projects anywhere in India. District Centre at Saket, Delhi has successfully merged Connaught Place walkway with traditional Indian styles as in glass with stone façade. However, such a project is an exception and most large mall projects lack depth in vision and planning.
All large mall projects, across regions and cities would need themes and strong positioning. To look for examples, we should look more to our immediate west, say Dubai, rather than the examples in South East Asia. Mall architects can draw inspiration from the local culture, history and architecture instead of simply constructing rectangular RCC shells covered with aluminium, plaster and bricks.
Vivek Dahiya is a director with the Indian operations of DTZ in the occupational and development markets team. Detailed Profile. Views expressed are personal. Find complete article in Nov-Dec issue of Shopping Centre News.
Vivek Dahiya is a director with the Indian operations of DTZ in the occupational and development markets team. Detailed Profile. Views expressed are personal. Find complete article in Nov-Dec issue of Shopping Centre News.
