The realtors failed to deliver 11 million sq ft of retail space in 2008. Out of the proposed 74 malls in 8 key cities at the beginning of 2008, only 34 were delivered through the year. Developers in the National Capital Region (NCR) lagged the most with a supply of 4.7 million sq ft compared with the earlier target of 7.1 million sq ft according to the report.
Developers may continue to restrict their supply, or go slow on retail space by a similar amount in 2009 across key major cities. "For any developer, the vacancy level should not cross over 5 per cent. The vacancy level of 16 per cent suggests that most of the malls across India are finding it difficult to manage their operational cost," said Rajneesh Mahajan, director of retail services at Cushman & Wakefield.
The reason for the shortfall was the mismatch between the potential and actual occupancy. The Indian organised retail sector grew at 25 per cent in 2007. Anticipating the growth of retail sector at above 35 per cent in the coming years, developers had announced big retail projects. However, owing to economic slowdown, the growth of the retail sector has come down to 15 per cent in 2008, resulting in developers deferring their projects for 1-2 years.
Owing to high vacancy rates, rentals for retail space have come down between 20 and 40 per cent and a further cut of 10-15 per cent is expected, according to Mahajan.
The correction in 2009 would be mainly in non-metros as the ripple effect of the rental correction will reach the tier-II and III cities, he added.
As the operational cost of the retailers became unviable due to high rentals and lower sales, they began to work on sustaining business through innovative revenue models and retail formats. The report predicts that minimum guarantee and revenue sharing models will make for at least a third of all retail deals in the long term.
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