Oversupply of retail space shifts power from developers to retailers; rentals under pressure
02 Mar 2011
A mammoth increase in planned supply of retail malls in India will increase retail companies' bargaining power vis-à-vis real estate developers.
This, in turn, will keep retail lease rentals stagnant in 10 Indian cities in 2011. Further, smaller existing malls will face intense competition from upcoming larger malls, many of which are slated to start operations by 2012.
With real estate developers planning to double the number of malls in 10 major cities in India, the retail real estate market faces the prospect of excess supply. CRISIL Research studied the retail real estate market in 10 cities in India - Ahmedabad, Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai, NCR, Pune, Chandigarh and Kochi - which house more than 85 per cent of the retail area in the country.
Developers are planning to add 242 malls by 2013 to the 255 malls currently prevalent in these cities. This will add about 96 million sq ft of retail area to the existing 72 million sq ft.
Based on expansion plans of retail companies, demand for retail area would be about 34 million sq ft during the
period, creating a significant demand-supply mismatch.
The excess supply will keep retail lease rentals stagnant in 2011, even though rentals have been at 35-
40 per cent discount from their peak levels in the first half of 2008.
