The Rental Factor

What is up with the retail rentals that went down with the downturn? Find out
Retail-Supply

With so many new entrants in the Indian retail market and existing companies on an expansion spree, retail space is a huge concern and with it comes the concern of the rents as well. The retail rentals saw a downfall in early 2008 with the strike of an economic slow down. Now that the country has recovered, what is the scenario with respect to the retail rentals in malls. Are they the same as during the slowdown or have they shot up? Let’s find out!

 

Current scenario!

We know about the scenario of one party developing a need and another party seeing the opportunity comes forward to fulfil it. In business scenario we call it demand and supply. Explaining about this model with respect to the retail rental scenario Pushpa Bector, VP Mall Management, DLF says “It’s about three things demand, supply and microeconomic scenario of a country. In 2008 people didn’t have the money the rentals went down and now they have it the rentals surely have gone up and will go high as developers provide better services to the retailer.”

 

With a big yes, Prodipto Sen, VP, Marketing, Retail and Corporate Affairs avers on the question of whether we are back from recession days or not, “We came out of the slump because of innovative thinking by retailers during the recession.  A combination of minimum guarantee or revenue share, whichever is higher ensures a win-win situation for all stake holders. Figures of revival from 2008 differ from location to location, but it is on an average over 25 per cent.” Great Going! Figures speak it all.

 

Going places!

The question in everybody’s mind is why are the retail rents rising? Well… why wouldn’t they? In past three months Delhi has seen the entrance of international players like Celio, Haagen-Dazs and Zara at Select City Walk one of the biggest malls in Delhi. Also, luxury brands like Versace entering the only luxury destination point in Delhi DLF Emporio- its not very difficult for builders to notice that there is a huge requirement of retail space and when they are providing the facilities they should ask the money for it as well.

 

Even after the slow down many places in Delhi like Khan Market and in Mumbai like Colaba still charge humungous amount of rentals. Why is so? “These places are landmarks in their respective cities. All ‘Down Town’ areas are always sought after world over and it is no different in India” opines Sen.

Is the scenario same for all the places? It differs from metros to tier II and III cities. On the other hand tier II and III cities are new bees on the retail scenario, it will take time for them to settle. Agreeing to this Sen says “Largely, there can be no comparison between the rents of metros and tier II cities.”

 

Revenue sharing concept

In 2008 when retailers saw their store footfalls going null, they made it a point to apply the revenue sharing model to their business. It’s a great concept which creates a win-win situation for both the retailer and the developer. Here the retailer every month gives a certain percentage of its revenue to the developer as rent. It varies but doesn’t kill the pocket of the retailer and also the developer gets his money on time. Bector agrees on this point saying “Increase in business of the retailers benefits both the parties. We believe in both revenue sharing and minimum guarantee model. Any one which gives more money is applicable. There is no average on the percentage share of the revenue, as the revenue differs drastically across categories.”

 

Clauses

Is there a special clause that a developer or a retailer adds on before they sign a deal? It could be on space, facilities, architectural design etc. Sen retorts “That would depend on the business goals of the respective developer and retailer. But proper, planned zoning and the optimum retail mix are very crucial ingredients in the success of malls, destination points and shopping centres. For example, it would not be a happy situation if a retailer in a pre-planned area drastically changes his product category, and for that matter the retailers too rightly expect mutually decided parameters to be consistently followed by developers in providing constant customer delight.”

 

In whose court is the ball?

The question that arises here is that who takes the maximum benefits from all this—a developer or a retailer? Being a developer, Sen surely isn’t at the side of his own kind. According to him the retailer takes it all at the end. He says, “A brand that knows it’s a crowd puller normally command a marginally lower rental and the developer can’t argue because he needs the foot fall.” So the retailer takes all the moolah!”

 

The future surely lies in the hands of both the retailer and the developer. Making world class shopping destinations is where they stand and retailers should realise the fact that they are getting great services and should pay for them without any renegotiations!

 

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