Rentals go through the roof on high street


December 22, 2012

Raghavendra Kamath & Sharleen D’Souza, Business Standard

Mumbai, December 22, 2012

Quality space and high street seem to sell even in a slow economy.

While many malls in the country are going vacant and space supply surpassing demand in many cities, shortage of quality space and heavy demand from retailers for high-footfall areas have pushed up high-street rents by 58 per cent this year.

Vittal Mallya Road in Bangalore, Colaba Causeway in Mumbai and Camac Street in Kolkata have seen a rise in rents of 58 per cent, 56 per cent and 33 per cent respectively, said a study from global property consultant Cushman & Wakefield.

“There are no good malls that are expected to come up in the next one or two years and hence demand for high street has gone up,” said Rajesh Jain, director and chief executive of fashion brand Lacoste, which has a store in Colaba Causeway. “Also, mall rentals are already very high and there is no room for rents to go up further.”

Sohel Kamdar, vice-president of Metro Shoes, said: “Footfalls are very high at high streets and productivity of our store in Colaba is twice as that of our other stores. Also, high streets have a ready customer base”

Retailers are opting for standalone stores on high streets rather than malls due to high maintenance charges, consultants said. Lower space-efficiency has also led to high demand for high-street spaces.

An executive with Tata-owned Trent said common area maintenance charges in malls have risen to Rs 40 a sq ft, against the Rs 10-12 a sq ft considered viable for department stores such as Westside. “Malls in cities such as Mumbai are now asking for a rent of Rs 400 per sq ft a month. A couple of years earlier, this stood at Rs 120 per sq ft. Office rents have moved in the reverse direction. Nothing explains the increase in mall rents,” the executive said.

Of the two dozen outlets Tata-run Trent planned for Westside this financial year, about two thirds would be standalone properties in high-footfall areas. Croma, Tata-owned chain of electronics and durables stores, planned to open a dozen of the 18 stores this year in standalone properties.

According to the Cushman report, over 58 per cent of the mall supply — around 4.8 million sq ft — had been deferred to 2013 by real estate developers due to low demand, poor liquidity conditions and hopes that they will get lot more brands next year as the government has allowed foreign direct investment in retail.

Khan Market in Delhi remained the most expensive retail location with rental values at Rs 1,250 per sq ft. It registered a rent rise of approximately four per cent over last year.

However, some high-streets saw rents stabilising or dropping in 2012. Brigade Road, Sampige Road, Kamanahalli Main Road and Commercial Street in Bangalore and North Usman Road, Anna Nagar Second Avenue in Chennai witnessed year-on-year drop in rentals, the report added.

According to Devangshu Dutta, chief executive of retail consultancy Third Eyesight, high-street stores also help brands establish their identity and build brands.

“Many retailers are finding it better to not be in a mall if they want to be a destination store. In a mall, you are among many other brands and do not have control over look and feel and customer experience,” he said.