Retail rentals get little bounce from realty revival

News Posted - 2010-04-06

KOLKATA: There may be a turnaround in realty fortunes, but rentals are still to look up. So much so that the likes of Shoppers Stop or Inox have not yet been approached by mall developers to cough up higher rentals.

Real estate analysts claim that the retail space should witness sustained growth for a considerable span for the segment to show an upward movement. Shoppers Stop customer care associate & vice-chairman BS Nagesh claims that the company has not been compelled to hike rentals till now.

“Though there seems to be a slight hardening of property prices across the country, we have not received any request to re-negotiate rentals at the properties which houses our stores. New properties that we will get picked up, however, will command higher rentals depending on the capital value of the property and various other factors simply because realtors now-a-days use a serious scientific method to get the right mix of retailers in their malls,” Mr Nagesh observed.

Inox Leisure, too, is yet to receive any such communication from developers. CEO Alok Tandon attributes it to the group’s realistic view of rentals and attempt to avoid entering into properties with unfeasible rents.

“It is primarily because of the company’s cautious approach that we did not have to re-negotiate our rentals with developers when recession hit the economy. We prefer the revenue-sharing model so that both developers as well as the tenant remain committed to the property and its upkeep,” he said.

It may be recalled that global meltdown and real estate downturn saw fixed rentals giving way to minimum guarantees of rentals and revenue sharing agreements. Almost all big- as well as medium-size retailers had entered into the agreement for an year or two.

“But it’s only been a year-and-a-half since then. Things are just about picking up in the retail segment. Before mall developers decide to re-negotiate the rentals, the retail segment needs to witness a sustained growth consistently for months, which is yet to happen,” Kaustuv Roy, executive director - India, Cushman & Wakefield, pointed out.

He added: “Retailers signing up space in malls now will not get commercial terms similar to those being enjoyed by retailers occupying space in the same mall for the past couple of years. Developers are gradually withdrawing the discounts they were offering for their prime properties and are striking lease agreements with new occupants at the existing market rates.”

Real estate biggies like DLF, which had offered huge discounts to tenants in their malls during recession, has decided to gradually withdraw these discounts in the current financial year.

DLF Group executive director Rajeev Talwar said: “We had, during the recessionary period, taken a soft stand on rentals. In some cases, we had not even taken any rental for a period of three months so that retailers can get some breathing time. But now that the market is looking up, we have started fresh negotiations with our tenants and we will soon be back to rental levels that existed a year and a half ago. Fortunately, our tenants, who are either large retailers or stand-alone shop owners, are responding positively to our proposal.”

Transactions have started happening at fair rentals over the past 6-8 months pan-India, Forum MD Rahul Saraf said. “Developers are continuing to stress more on revenue-sharing model, which is an accepted formula internationally. This model works well for us as it reduces the complexities involved in entering into fresh agreements depending on market conditions,” said a Bata India official. However, he pointed out that high-street properties continue to remain expensive. Incidentally, Bata India has more than 1,200 stores pan-India, including some in large shopping malls.

CB Richard Ellis, chairman & managing director for the South Asia region Anshuman Magazine, is of the view that retail rentals will remain flat in the short term. “But in the long run, there will be some recovery in the rentals in the current fiscal. However, a revision in rentals I feel will largely depend on how best the mall is managed. But the rental level of 2007 will be difficult to achieve as there is enough supply of retail space in the market,” he added.

Source:The Economics Times 5/4/10