If dams and large public sector companies were the temples of Nehru’s India, shopping malls were supposed to be the sacred space of liberalised India in the 21st century. Unfortunately, the worshippers are missing. Thirty per cent of India’s 255 malls lie vacant, most of them in the National Capital Region (NCR) and Mumbai.
In NCR, the vacancy rate in malls is 30 per cent; in Mumbai, it is about 25 per cent.
Chennai’s vacancy rate was 10 per cent in 2011 but increased to 20 per cent in 2012, as new malls came up. Bangalore and Hyderabad, too are grappling with an oversupply of malls and face a vacancy rate of 5-10 per cent. How and why did the great Indian mall story go bust? Four key reasons. First, a demand-supply mismatch as seen in the case of Noida and Gurgaon, where a plethora of malls have come up without taking into account the comparative lack of demand. As Ansal API’s vice-chairman Pranav Ansal says: “Much more mall space has been constructed than is required. This demand-supply mismatch has given more power to brands/retailers who can negotiate on their terms and dictate terms to the developers.”
Two, lack of foresight in planning. This is most evident in the capital’s Ansal Plaza, which has a great location in south Delhi and opened with much fanfare in 1999. The mall flourished for the first seven years due to the absence of competition but has now been deserted by shoppers looking for snazzier stores and additional features like a multiplex and food court which they find in the more recently-developed Select CityWalk and DLF and Ambience malls. “Ansal Plaza didn’t have a multiplex because the policy didn’t allow us to have one in a mall at that time. Also FDI in retail was not opened up at that time,” explains Sushil Ansal, chairman of Ansal API.
The Star City Mall in Mayur Vihar in East Delhi is another victim of poor planning. With Reliance Retail as its anchor store, Star City was convinced it had a bright future ahead. But with no other features on offer, even the anchor store failed to attract footfalls and had to shut shop. Not many takers have evinced interest in the mall. Nearly 70 per cent of the three-storeyed mall is vacant today, with only a handful of shops selling liquor and a few offices still in residence. “It was a DDA property that we acquired to build the mall. The Authority did not allow us to open a multiplex and today there are no footfalls,” rues R K Mahatta of Mahatta Towers, which owns the mall.
Kohinoor Mall in South Delhi, Northgate Mall in North Delhi, Centre One Mall in Vashi and the Dreams Mall in Handup, Mumbai are other malls that are lying empty because of lack of demand from retailers. The third reason for the failure of many malls is faulty positioning and a poor selection of tenants. One reason why South City Mall in South Kolkata works is because “we are very selective about the brands that we choose,” explains Manmohan Bagree, VP, South City Projects. “We are five-years-old but we still want to upgrade ourselves. With an average footfall of 2.25 million in a month, we are very attractive to retailers.”
Shubhranshu Pani, managing director, retail at real estate consultant firm Jones Lang LaSalle India, agrees with him. “Good malls do not find it difficult to find tenants. It’s only when a mall is not positioned right or doesn’t have the right tenants resulting in reduced footfalls that it struggles. Malls in India are a difficult asset class,” he says.
Adds Bagree: “Retail in this country is going through a tough phase. Too many developers launch malls without understanding the business model properly. Therefore, vacancy levels are high.”
Another reason for malls going empty is the exorbitant rent being demanded by the developers. For many retailers, these are unsustainable. Bangalore-based developer Irfan Razack, who is the chairman-cum-managing director of Prestige Constructions, appreciates their concern. “Developers often fail to understand that retailers can’t pay till their stores start making money. So we have introduced a ‘variable rental scheme’. The fixed rent covers our costs and if the store does well, we get a percentage of the turnover. Most of the other large shopping centres are also following this model now,” he says.
Strangely, the woes of the existing malls do not seem to be deterring potential mall owners. An estimated 40 malls are slated to come up this year, across Kolkata, Bangalore, Pune, Hyderabad, Delhi and Chennai. Another 25 mall are scheduled to be built across the country in the next financial year. Time will tell whether they’re greeted by a boom or doom.
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