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Oversupply in mall space to benefit retail companies: Crisil

The Hindu Business Line, Mumbai

March 03, 2011

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Mall rentals are bound to remain stagnant with 242 malls set to come in 10 major cities that have 255 malls in operation.

A study by Crisil research, said the existing smaller malls were set to face intense competition from the upcoming larger ones that are scheduled to open in 2012. Currently, mall lease rentals are at 35-40 per cent discount to the peak levels in the first half of 2008.

Crisil said about 96 million sq ft of retail space are scheduled to come up in Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, the national capital region, Pune, Chandigarh and Kochi by 2013. These cities as such account for 85 per cent of retail area in the country with 72 million sq ft.

Based on the expansion plans of retail companies, the demand for the space would be about 34 million sq ft, bringing about a demand-supply mismatch that would be in favour of the retail player.

“The supply pressure is already being felt by real estate developers in 2010. Developers have been losing bargaining power to retail companies over the previous two years, as additions in retail space has outpaced outlet expansion by the companies. Despite retail sales rising around 25 per cent in 2010, retail lease rentals increased marginally by 3-4 per cent. This clearly shows a decisive shift in bargaining power to the retail companies,” said Mr Nagarajan Narasimhan, Director- Crisil Research.

In addition, the average area of the proposed malls would be 4 lakh sq ft each which would be 40 per cent larger than the existing ones in the 10 cities covered by the Crisil study.

More importantly, the new malls will attract retailers with their sheer size and better facilities and erode the competitiveness of the existing ones that are within eight km of each other, said Mr Narasimhan.

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