Store rentals have come down by 10 to 20 per cent in tier-II and tier-III cities in the last three to four months, said retailers at the India Retail Forum here. The rentals have dropped following the country’s property market cooling down after three years of high growth.
Many retailers, such as Aditya Birla Retail, could not expand their hypermarkets and large-format retail stores as they had planned due to high rentals and unavailability of space.
“With the downturn in the property market, the correction process has already started. With this, we hope rollouts will be pretty faster,” said Thomas Varghese, the chief executive of Aditya Birla Retail, which has over 600 stores in the country, including two hypermarkets.
“We have seen rentals cooling off by 10 to 20 per cent in the last three to four months,’’ said Ashok Bhasin, managing director, Wadhawan Food Retail, which runs the Spinach brand of convenience stores.
According to property consultants, Kishore Biyani’s Future Group has been unable to strike deals for nearly 6 to 7 lakh sq ft of ready retail space in the last three to four months due to high rentals.
“We have looked at many locations and said no to many. But now, developers are demanding much more sensible rentals than before. We are closing three deals very soon,” said Mark Ashman, the chief executive of Marks and Spencer India.
Marks and Spencer, which has a joint venture with Reliance Industries, plans to open 50 stores in the country in the next five years.
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Apart from the correction in rentals, analysts tracking the sector said 60 per cent of retailers were opting for revenue-sharing agreements with mall developers, wherein retailers pay a share of their sales to developers.
“Now retailers are demanding zero rentals and a full revenue-sharing agreement. Until and unless developers realise the need for reasonable rentals, many deals may break off,” said Bappaditya Basu of property consultancy Jones Lang LaSalle Meghraj.
Analysts also attribute the decline in rentals to oversupply of retail space in the next couple of years. According to property consultancy CB Richard Ellis, nearly 100 million sq ft of retail property development is in the pipeline.
“Some developers were building malls at Rs 4,000 a sq ft. I wonder who will occupy those malls at such rates,’’ said Future Group Chief Executive Kishore Biyani.
“Developers were building malls not for retailers, but for investors. They did not figure out what would drive retailers to malls. But now, investors are backing out and funds are drying up for developers, which is leading to rationalisation of rentals,’’ said Sanjay Dutt, deputy managing director, Cushman & Wakefield.