Re-leasing: Worth it?

Re leasing a mall can be a tedious work at hand. Though it will bring a whim of fresh air, delay can spoil the game. Here is what goes into the process...
Re-leasing worth it

Re-leasing is equally imperative for a mall as it is for a brand to launch new collections every now and then to add flavour to their stores. Mall owners strategically plan this activity for a larger good. 

As rightly said by Kishor Bhatija, CEO, Inorbit Malls, leasing and re‑leasing are essentially the same processes in different life stages of the mall. Both these processes work towards increasing footfalls and profits for both the mall owner and the retailers.

The shuffle of brands in a mall over a period of time is a result of re-leasing that takes place when a lease is renewed for the brands. Leasing to re-leasing is a six to nine year process. Bringing in a fresh flavour always works. Bappaditya Basu, Senior Vice President - Retail Services, Jones Lang LaSalle India tells, “Re-leasing makes the mall see new faces and makes the mall vibrant as the customers sees change. Sometimes it is necessary in the sense that unprofitable brands can make the mall bleed to death. Hence, new brands are introduced who will attract new customer and increase the foot falls.”

Sieving process

The decision of letting a brand go or of letting it continue operations is one side of the story. While on the other side of the hedge, the brand may want to continue operations or call it quits at the retail location owing to its reasons. Catering to the demand is what runs the retail show, and the same is applicable in malls. Benu Sehgal, Mall Head, DLF Place, Saket explains, “Malls are made for people to shop. They should match demands of the demographics. Brands matching the needs of the demographics and generating good revenue are always welcome; rest will have to be filtered out. Adding further on how they take this decision, she says, “This decision depends on the performance of the retailers and the performance depends highly on the kind of demographic mall has.” The story is the same at Inorbit as well.  Bhatija says, “The categories and brands that are housed in the mall is a result of a detailed understanding of the catchment which is being served. The performance of these brands is tracked on a continuous basis and necessary support in the form of signage, social media is provided for it to grow as per projections and the other brands in the category. A few of the brands may not perform as per expectations, which could be due to various reasons. Re-leasing would be the outcome of churns of such brands and also the change in brands due to repositioning of the mall to bring it in line with the changing requirements and aspirations of the catchment.”

Shooting up rent: an issue

The primary concern that comes along with the process of re-leasing is high rentals. Rental hike is inevitable; however, it differs from mall to mall. Each developer has laid down the percentage increase according to their own policies and business strategies, keeping in mind the business that the brands carry out over the years. Sehgal says, “The percentage of rental difference is 15 per cent, every time we renew the lease.” For Inorbit, it is a function of what business can be generated considering the potential of a brand. Real estate value is also what they consider. Owing to the plummet in real estate costs, Tinku Singh, Group President, SRS Limited tells, “Leasing price has dropped from what it was previously. During recession, there was a downturn and renegotiation happened. Rentals have gone down: from 2006-2008 retail space saw a boom and later with recession the prices came down. Growth rate has been really low.” This calls for worthy news for brands, as they no longer have to worry about or ponder over towering price rise while re‑leasing.

Retailers can have an upper hand to negotiate on the value augmentation if their contribution to the mall is of immense relevance. Basu articulates, “Retailers typically overestimate or underestimate their relative bargaining strength at renewal times. If they truly offer uniqueness to a mall through branding, leasehold improvements, high sales per square foot, or merchandise mix, then they may be able to extract concessions.”

Category modification

Category modification is always welcomed. An extension of categories facilitates footfall which is what mall owners and retailers strive for. Adding new categories can bring a whiff of freshness for customers who may feel they have something new to look forward to besides some of their favourite halts. Sehgal says, “We always do look at adding new categories. There is no harm is adding new flavours to the mall.”

Adding categories may be an easy decision to take but how to fit them in so as to compliment the rest of the offerings is what needs some brain exercise. Bhatija tells, “Category alteration is a question which has to be periodically addressed, but it cannot be carried out at the cost of shrinking the variety of brands in the category present in the mall. Over an extended period of time there are possibilities that categories need to be phased out due to various reasons.”

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