Builders Go Slow on Big Shopping Malls

More than a dozen projects put on hold due to rising costs and subdued demand from large retailers; some developers even shelve projects

Big shopping malls are fast losing sheen among builders, who have put on hold a number of projects across the country due to rising costs and dwindling demand in a slowing economy. 

More than a dozen projects that were due for completion this year have been put on hold, even as just a third of the anticipated supply of 24.27 million sq ft retailing space in 2011 was eventually executed. 
India's largest realty firm DLF has shelved a luxury mall in Mumbai and another in Chennai to unlock value, while other builders such as Sheth Developers, Nirmal Lifestyle and Sonal Group have deferred the completion of their new malls by two to four quarters. Developers such as RMZ, Ozone, Landmark, Embassy Property Developers and K Raheja have also deferred projects by a year or put them on hold until the retail market revives. 
Even as the demand from big retailers has softened, construction and borrowing costs have risen for developers. Further, the returns from shopping malls are much lower compared with office complexes. 
"It is a difficult time and mall development activities are not as high as three years ago," said Vishal Mirchandani, CEOretail at Brigade Enterprises. "Retailers are cautious and will try to hold expansion even if they have made commitments." 
Bangalore-based Embassy Property Developers has delayed by two quarters its 189,762 sq ft Embassy Galaxy Mall — earlier expected to be completed by the end of this year — and will target luxury and premium brands. "There have been delays due to operational issues," said the company's chairman and managing director Jitendra Virwani. 
Inorbit and Vega malls in Bangalore are facing similar delays, while Orion and Signature malls have became operational over the past few months, nearly two years behind schedule. 
"Delays in store openings impact a retailer's revenues and scale, which are critical for its viability," said Viney Singh, managing director of Max Hypermarket India. At present, there are 155 shopping malls across the country with a combined retail space of 60 million sq ft, of which 8.04 million sq ft was added last year. In Mumbai, 1.5 million sq ft of mall space is expected to be added over the next 12 months. 
"The retail mall as an asset class is difficult to market compared with easier asset classes such as residential and commercial properties. Hence, the developers are focusing more on residential and not venturing into the high-risk retail mall space," said Anshul Jain, chief executive officer of DTZ India. 
According to rating agency Crisil, as much as 96 million sq ft of retail area is expected to be added over the next three years, against the demand of 34 million sq ft, spelling a significant mismatch. 
"Malls constructed in over-supplied micro markets have not seen much success in terms of occupancies. The anticipated supply of the projects that are under execution is higher than the actual demand," said Jaideep Wahi, director-retail services at Cushman & Wakefield India. 
In Delhi and the National Capital Region, a few developers are adopting a mix-use approach to pare their risks and announcing projects that have residential, commercial and retail segments built into their designs. "With hopes of further liberalisation in multi-brand retail, the real estate sector is hopeful of demand pickup in the coming times. Going ahead, policy impetus will drive demand in retail segment," said Omaxe chairman and managing director Rohtas Goel, who is targeting smaller cities such as Patiala, Ludhiana and Lucknow to launch his retail venture. 
Indian retail industry has seen moderate growth even as same-store sales have slowed down. While most retailers clocked between 20% and 30% growth in the quarter to March, sales from stores that were operational last year grew in single digits and are unlikely to improve this fiscal. 
"For retailers, sales-per-sq ft is the most important parameter before setting up their store. Rentals in malls have gone up by 14% over the past year, making it difficult for retailers to operate," said Susil Dungarwal, chief mall mechanic at Beyond Squarefeet Advisory, a boutique mall consultancy firm. Retailers are reducing the size of their stores to increase efficiency and profitability, Dungarwal added. 
Retailers are now looking to set up standalone stores ranging between 750 sq ft and 1,000 sq ft as against 2,000-2,500 sq ft earlier.