Mall investors slam brakes on new launches amid Covid-19 pandemic

With uncertainty over how many more coronavirus waves lie in store, investors in shopping malls are stalling construction or postponing the launch of their new properties in 2021.

Many might be forced to sell off their properties to new players or repurpose them to create some office or co-working space to hedge their bets.

This year, over 54 new malls with over 22 million square feet of space were expected to open across India. According to estimates by Colliers India, only five with a total space of 2.5 million square feet are looking to go ahead, even though malls with six million square feet of space will be completed.

About 68 per cent of these malls are in Tier 1 cities (the metros) and the rest in Tier 2 cities.

“We expect about 30 per cent of these mall owners might have to sell their properties to new owners or repurpose the projects to be profitable. That is because business is getting impacted by the second wave and a third wave is imminent,” said Ajay Sharma, managing director, Colliers India.

According to industry estimates, a substantial portion of the Rs 14,000 crore that shopping mall owners were expecting to put into the 54 new malls has already been invested.  

This view is endorsed by Mukesh Kumar, CEO of Infiniti Mall and chairman of the Shopping Centres’ Association of India which represents most shopping malls.

“No big mall wants to open with very few footfalls. They will wait and watch. We will also see construction activity for malls which had stopped, starting again, maybe in the second or third quarter of the year or spilling over into next year,” said Kumar.

Existing shopping mall owners could also be staring at a huge loss this year. Kumar said the revenues generated by the mall industry are around Rs 15,000-Rs 18,000 crore every month (retail revenues) out of which 15 per cent is rental revenue.

“Currently we have seen two months of complete closure so there has been a loss in revenues by retailers as well as mall owners. We expect malls will start to open up by June middle and customers will trickle in from July,” said Kumar.

In short, the closure will be shorter than last year and therefore rental losses will be lower too. However, based on even these less dismal calculations, rental losses for mall owners could be in the range of Rs 4,500-Rs 6,400 crore for two months.

Some experts believe the losses will be higher for the simple reason that they expect malls to be closed for four months. “Our expectation is that shopping malls will be closed for four months, one month more than high street. So one third of the year will be gone," said Shubhranshu Pani, managing director of retail services in JLL India.  

This means that overall revenue losses for retailers as well as rental losses for mall owners could go up even higher than last year. 

He added that the trend is to go for revenue share rather than fixed rentals or minimum guarantees, retailers. But Kumar says that mall owners have not yet started negotiations.

Shopping mall owners agree that the hit will be more pronounced in small malls. The bigger malls with over 500,000 square feet and located mostly in the metros will have an easier time of it.

Colliers Sharma estimates that vacancies stand at around 15 per cent in large malls, as compared with 5-6 per cent in normal times. In malls that are below 300,000 sq ft, vacancies are at 30-40 per cent.  

“In the larger malls, 50-60 per cent of the space is occupied by global brands which have a long-term view and also a business model with deep pockets. But in the smaller malls they account for only 20 per cent,” said Sharma.  

The rest, he said, are smaller retailers who cannot sustain themselves if there is no revenue. That puts tremendous stress on mall owners, forcing them to look for a different model to survive.