Retail rentals decline by 20% in Q3

India’s retail sector showed signs of sluggish activities in the third quarter ended September 2008 with most retailers recalibrating their expansion strategies in response to slower consumer demand.

The rentals dipped by 20%, the maximum decline, at Linking road and Kemps corner in Mumbai, according to real estate firm Cushman & Wakefield.

The rental values for malls and high streets in many major micro–markets across the cities witnessed a slowdown over the last quarter indicating a phase of correction, C&W said in a statement.

Traditionally strong retail high street locations reported significant slide in rental values. In Delhi - Karol Bagh saws 18% drop, Ganesh Khind Road (Pune) and Cathedral Road – R.K. Salai (Chennai) both witnessed 13%. This is, prominently due to caution in expansion plans of retailers which is leading to a slowdown in demand.
 
Mall rentals too witnessed a similar trend where rental values have corrected to realign to the achievable business potential of the given market. This was especially true for rentals in Mumbai markets such as Ghatkopar (-11 %) and Vashi (-10 %).

National capital Region which received the highest quantum of mall space in this quarter saw rental correction of approximately 6-9 per cent in peripheral locations like Noida and Gurgaon.

Bangalore, Hyderabad and Kolkata retail markets remained stable with certain mall locations even seeing an appreciation in rental values. Ahmedabad situated on the other side of rental spectrum experienced the highest fall in rental values of 20 % in Kankaria Lake.
 
The real estate services firm said the expected mall supply for 2008 has been reduced by approximately 36 per cent to 10.57 mn sq. ft. for the year of 2008 from previous quarter estimates of approximately 16.77 mn sq.ft. The drop in the estimated supply is largely due to delays in project completion.

In July-September 2008 (Q3), the total supply for retail malls was 3.25 mn sq.ft. which was dominated by NCR that received approximately 2.1 mn sq. ft. Only two other cities witnessed new addition to mall supply in 3Q 2008 which includes Mumbai (0.89 mn sq. ft.) and Pune (0.25 mn sq.ft.).

Approximately 2.4 mn sq. ft. of supply is expected in the fourth quarter ended 2008.