Rental income of retail malls to increase by 30% in FY23, says report

Rental income of retail malls is expected to increase by 30 per cent in this financial year compared to the last year mainly driven by pent-up demand, vaccination cover and resumption of multiplexes

Rental income of retail malls is expected to increase by 30 per cent in this financial year compared to the last year mainly driven by pent-up demand, high vaccination coverage and resumption of multiplexes, according to a report.

Retail malls have witnessed a sharp recovery in their operational metrics since August 2021 post the second wave of Covid-19, the report by Icra said.

The trajectory has largely sustained in H2 FY22 barring a brief pause due to Omicron, it said adding the retail trading values in the third quarter of FY22 reached the pre-Covid levels and surpassed the pre-Covid trading values in the last quarter of FY22.

The footfalls at retail malls are expected to reach pre-Covid levels in the third quarter of FY23, it said.

"The rental income improvement is faster post-second wave with recovery at 74 per cent for the second quarter of FY22 (against 34 per cent for second quarter of FY21) and reaching 102 per cent of pre-Covid levels in H2 FY22," Icra Vice-President and Sector Head, Corporate Ratings, Anupama Reddy said.

In FY22, the rental income witnessed an increase by around 56 per cent, reaching around 80 per cent of pre-Covid levels, she said.

"On the vacancy levels, the addition of new retail space was around 11 msft in FY21 and FY22 for the aggregate of six cities, however, the incremental space absorption was only around 4 million square feet (msft) during this period resulting in a significant increase in the vacancy levels to 23 per cent in FY22 from 18 per cent in FY20.

"On a same-store basis, the rental income is expected to increase by around 30 per cent in FY23 and is likely to surpass FY20 levels by around 4-6 per cent. With the normalcy in the trading values, the occupancy is expected to improve in this fiscal," Reddy added.

The report further revealed that as per the leverage and debt coverage metrics, the debt-to-OPBDITA (Operating profits before depreciation, interest and amortisation or operating income) ratio is expected to ease to 6-8x in FY23 from 8-10x in FY22, with a significant rise in OPBDITA supported by improved trading density and footfalls.

Debt service coverage ratio, which was less than 1x for two consecutive years (FY21 and FY22) is expected to improve to 1.10-1.15x in FY23 with the improved rental recoveries, the report added.