In sign of downturn, Indian retail landlords finally capitulate on price

Sep 19 2013, 11:21 IST
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The supply of new retail space is expected to tighten sharply from 2015. (Reuters) The supply of new retail space is expected to tighten sharply from 2015. (Reuters)
SummaryUsually tight-fisted retail landlords have become uncharacteristically flexible on rents.

square metres) in the city of Pune, near Mumbai. "Retailers are seeing this as a window to close a deal at a better rate."

The mall, with brands such as Hong Kong fashion chain Esprit Holdings Ltd, U.S. clothing brand Levi's and Britain's department store Marks & Spencer, has renegotiated some leases in recent months at a discount of 5-8 per cent.


The chance to lock in cheaper rents has prompted Future Retail Ltd to focus on relocating stores rather than opening new ones.

It has opened only two of its flagship Big Bazaar hypermarkets this year through July, compared with 20 a year earlier. It has, however, relocated several to locations offering more competitive rents.

"There are many good deals available now and it only makes sense to block those spaces up because the economy won't stay this way forever," said C.P. Toshniwal, the group's chief financial officer.

Costa Coffee, a unit of Britain's Whitbread Plc, is finding better deals on high streets than in malls, with prices down 10-15 per cent in the past two to three months, its India managing director, Santhosh Unni, said. He expects rents to keep falling in the next 6-8 months.

Hypermarket chain Spencer's Retail, owned by power utility CESC Ltd, said rental costs have dropped as much as 20 per cent and it has been negotiating for 40 properties ahead of plans to open 80 stores over four years.

"We are hopeful of booking twice the number of deals today than we would normally because the market has become more realistic," said Chief Executive Mohit Kampani.

The bargains may not last long though.

Jones Lang LaSalle's Real Estate Intelligence Service estimates about 20 per cent of retail space is vacant and the gap might increase to 24 per cent in 2014, explaining why landlords are under pressure.

But since retailers often book space a few years in advance, eyes are already on 2015 and beyond because that is when supply is expected to tighten.

Jones Lang LaSalle expects the supply of new mall space to drop to 7.3 million sq ft (680,000 square metres) in 2015 from a record of 13.8 million sq ft (1.3 million square metres) in 2011.

"New mall projects are drying up so irrespective of good deals or not and the current problems with the economy, we are going ahead and booking space," said Govind Shrikhande, managing director of Shoppers Stop,

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