Effect of the Realty Bubble on Shopping Malls in India

By: Sanya Kaushik

Since 1957, when the first shopping center to be promoted as a ‘mall’ (Bergen Mall, New Jersey) made its way into the Western world, shopping malls have been ubiquitous in almost every single country the world over. Today, shopping malls are a one-stop destination for scores of people; retail therapy, recreation, grocery shopping, whatever be the need of the hour, you can be sure to find it at a mall.

Touted as a testament to a country’s industrial growth and development, shopping malls have seemingly become the driving force of the retail real estate industry on a global scale. In India, even people living in the smallest, most off-the-map towns have access to at least one mall. However, this pervasive trend may be facing a slow but definite decline.

Given the less-than-favorable state of the Indian real estate industry, a number of major builder groups are finding it incredibly difficult to sustain this particular business model. Increasing real estate prices and rising construction costs have led to lengthening of the break even period; it has increased to 10 or more years in some cases.

“The crazy building boom in retail real estate is not going to come back,” says Kishore Bhatija, Chief Executive Officer of InOrbit Malls, owned by reputed real estate group, K Raheja.

The property consultants of several large firms, like Cushman & Wakefield and Jones Lang Lasalle, have stated the national vacancy rate to be 25% in this New Year, having increased from 20% in the previous year. In metro and rapidly-growing cities such as Delhi NCR, Ahmedabad and Pune, the vacancy rate has crossed the 25% mark.

This accelerating rate can be largely accredited to the rising rent of retail and office spaces, which is a direct result of increasing construction costs and realty prices. Developers are trying to recover their money by hiking up the rent. However, since no one can afford to pay these rents, several commercial spaces are lying empty and unoccupied.

Experts suggest that this situation will not be alleviated until the Indian real estate bubble bursts. If the prices of real estate properties come down, so will the rent of commercial spaces.