India’s real estate has undergone a tremendous transition over the past decade. Among the changes witnessed is the growing divide between successful and unsuccessful malls in the country. During the last few years, developers have reduced the supply of mall space in India due to rising vacancy levels. This is in stark contrast to the interest of developers in constructing malls at a break-neck pace, a few years earlier, in response to a spurt in the organised retail business.
Back then, few developers had realised the importance of the right ingredients that go into the construction of a successful mall. The realisation that quality is important for sustained results dawned on them after the economic slowdown in 2010.
Unlike commercial buildings, whose tenants are stable and share common facilities, the management of retail malls is complex. Apart from catering to various categories of brands, mall management also involves planning the right tenant mix, space optimisation and zoning, and constantly studying shopper behaviour.
Malls need to collect feedback from visitors in order to remain relevant across the year. Otherwise, as many malls have found out, they will be forced out of the competition.
Some malls perform poorly as they are unable to define their type, lack research on catchment, and end up selecting wrong partners. By the turn of the current decade, it was evident that mall management had been fatally ignored by many developers.
The overall vacancy rate today stands high at 20 per cent in retail malls across major Indian cities. On the contrary, malls that run successfully have vacancies of not more than 10 per cent, with a selective few even operating near full capacity.
During recent years, the malls that have given up hope are either converting into Grade-B office spaces or getting demolished to make way for a new asset class in real estate.
Many experts believe that most of these poorly-designed malls are those constructed during the initial boom. This is a misconception as market examples suggest that there are many old malls which have found relevance in a market that rewards better design and quality mall management.
In the near future, we expect more malls to withdraw from the retail realty business, causing the improvement of business in all the other malls. According to our estimates, around 14 malls across the country will withdraw from retail operations. This is a much-needed course correction, that will reinforce the importance of quality practices in constructing malls.
The writer is Chairman and Country Head at JLL India
Published - September 04, 2015 03:40 pm IST
