2018 set to witness highest supply of malls in 6 years, says study

The year is expected to see a new mall supply of 7.8 million sq ft, which is the highest supply in the past six years, according to a new study.

The number  newly completed malls in 2017 was recorded at 5.6 million sq ft, which is expected to see an increment of close to 40 per cent year-on-year in 2018, JLL’s new report said.

Mall supply in the next three years (2018-2020) is expected to be at 19.4 million square feet. In the same period, demand will be approximately 15 million sq ft.  

The largest contribution to this will be coming from Hyderabad (2.2 mn sq ft) and Chennai (1.5 mn sq ft). Delhi-NCR will be witnessing the highest supply of 2.3 mn sq ft of new mall space in 2018, albeit recording a decline of 28% y-o-y since 2017. 

“Further, we expect a parallel rationalisation of existing mall spaces, which will help the market avoid an oversupply situation. As a natural course of events, we can expect a few malls to close down or temporarily suspend their operations for repairs, renovation and upgrades. This will help the market create the necessary balance to maintain the rental values,” JLL said.

While retail mall space has started to see a rise in the market, JLL said it has also experienced some rationalisation in supply in the last year. It said that 2017 saw withdrawal of nearly 5 mn sq ft of retail space with a shut down of 28 malls. Most of the rationalisation took place in Delhi-NCR and Mumbai, owing to the fact that these markets have significant mall stocks with a considerable percentage of the same performing below par. 

“The retail sector of India is going through a fresh period of growth backed by strong economic fundamentals. As we have seen an increase in interest from investors which was seen with investments of over $750 mn in 2017,” said Ramesh Nair, chief executive officer and country head, JLL India. 

Despite an expected decline in Delhi – NCR, the city is expecting to see an addition of 2.3 mn sq ft of new mall space in 2018. Most of these malls will be in the peripheral regions and would be catering to the growing catchments of Noida, Gurgaon and Greater Gurgoan. While Delhi – NCR already has the highest inventory, the growth of retail sector points out to the further possibilities of growth. In the same space, Mumbai which has in the past few years seen as slowdown in retail development activities will continue to witness remain cautious. 2018 will see a decline of 13 per cent y-o-y in new mall completions, further maintaining the status quo in the market. 

Chennai will experience a surge in new completion mall spaces with over 1.5 mn sq ft of new malls being added. Chennai has seen extremely restrained development activities over the last few years, mostly due to strong preference by retailers for traditional high street locations. Hyderabad is the other major market to see significant growth adding 2.2 mn sq ft of new mall supply in 2018. This comes at the back that the city has not seen any new supply in the last year and has had a history of sporadic additions from time to time. 

“Despite the onslaught of new retail formats like e-commerce, tele- marketing and others, we will continue to see a steady growth in brick and mortar form of retail as the sector is pegged to grow to Rs 1 trillion by 2020, at a CAGR of approximately 15%. We expect the opening up of FDI will be instrumental in achieving and surpassing these growth estimates,” said Ramesh Nair.