Big mall openings may pause with new projects drying up in the next one year after cash-strapped real estate developers rolled back investments into glitzy shopping complexes, leaving some retailers worried about their expansion plans.
"There won't be many big malls, almost nothing in our reckoning, hitting the market beyond late 2012," says Sameer Sain, Founder & CEO, Everstone Capital, which owns about 14 malls through real estate funds Kshitij and Horizon. This, ironically, might coincide with India's plans to open up multi-brand retail to foreign direct investment (FDI) and allow single-brand retail operations to be 100% foreign owned.
Many of the big ongoing mall projects-like Atul Ruia's Pheonix Market City malls, DLF's Mall of India in Noida, Dubai-based Lulu's mall in Kochi, and L&T's Elante Mall in Chandigarh - are expected to open in the first three quarters of next year. This leaves retailers and brand owners, who have bet on the "malling" experience, with little visibility on store expansion beyond December 2012.
Sanjiv Goenka's Spencer Mall in Kolkata is slated for last quarter of next year but may slip into 2013, while Parsvanath, Raheja, Prestige and other local developers have a pipeline of smaller malls in multiple cities rolling into the market in the next 2-3 years.
Pheonix Mills CEO Shishir Shrivastava said that supply of malls in big metros would drop significantly within a year. "In 2005, bullish on the India growth story, many players entered the retail infrastructure market, announcing several projects but they couldn't sustain it because of financial pressures. While some intend to monetize certain projects, others have scaled down their expansion plans," he added.
DLF, India's largest realty firm, shelved plans to construct a luxury mall at Lower Parel in Mumbai and has explored other options to unlock value from the textile mill land it acquired six years ago. Its peer Unitech and many other developers took similar decisions to delay or withdraw investments into retail.
About 22 malls have been put on hold or dropped in Bangalore, according to Jones Lang LaSalle (JLL) India. In Mumbai, seven new malls are expected to come up in 2012 and none after that. Retail consultancy Asipac estimates that top 20 cities can absorb per capita mall space between 1 sqft and 1.5 sqft based on the economic growth projections, but current numbers for all metros are well below 1 sqft with Bangalore topping at 0.94 sqft. This means Indian cities can absorb more malls based on per capita income, spending power and current growth rates. JLL data suggests that about 350 malls were announced in the past six years, many of which are operational, quite a few delayed and some still under planning.
The slowdown in big mall development would prompt a rejig in the expansion plans of global and desi lifestyle brands, which had banked on new malls for most of their new stores. Aditya Birla-owned Madura Fashion & Lifestyle is returning to high streets - even if there aren't many - to keep the expansion story going for its brands like Louis Philippe, Van Heusen and Allen Solly.
"The crisis for lifestyle, especially luxury retail, lies ahead," says Darshan Mehta, President & CEO, Reliance Brands, which has joint ventures and licensing rights for seven global retailers, including Diesel and Kenneth Cole. "I do not have any visibility for large new malls in Ahmedabad, a city with 10 million population and half the size of Los Angeles, and for that matter even in Gurgaon or South Mumbai, some of the biggest consumption belts in the country," he added.
Big developers, facing liquidity crunch in the aftermath of the 2008 crash, have cut back on retail projects as they generated significantly lower returns compared to residential, office space and warehousing projects. The investment into retail infrastructure has longer gestation periods with mall operations taking anywhere between one to two years to stabilize, depending on the tenant mix and brand marketing.
"The paucity of new big malls is beginning to concern us," says Shailesh Chaturvedi, CEO, Tommy Hilfiger, which eyes expansion in 40-odd cities. "It probably made little sense for developers to invest in long gestation projects like malls in a liquidity tightening regime," he adds. Real estate costs account for almost 75% of the development costs making little sense for a developer to acquire land for building a large shopping mall. Then what rolls into the market are opportunistic shopping arcades coming up on smaller land parcels, dubbed as "malls".
Asipac MD Amit Bagaria does not agree with short-supply of new malls except in Mumbai and parts of National Capital Region. Hyderabad, for instance, has 19 upcoming malls each with developments above one lakh sq ft leading to a potential 16% over supply by 2014, he adds. But lifestyle retailers and brands argue on the relevance of smaller malls-with less than 1.5 lakh sqft-transforming into neighbourhood shopping centres where one goes for routine needs. "It's the larger malls that will emerge as destination centres and an opportunity for big brands," Shrivastava says. Even as some developers explained that building malls of more than 800,000 sqft may not be viable until organized retail gains heft, which is dependent on FDI.