Realty slump: Retailers do hard-bargaining over rentals
The slowdown in retail has swung the power pendulum from developers into retailers’ favour. Oversupply of malls in some cases and hard bargaining by retailers has led to a 25–70% fall in rentals. CNBC-TV18’s Tanvi Shukla reports.
Till June last year, the retail sector was complaining about soaring rentals. Then, there was a shortage of malls, and retailers had to give in to the demands of landlords. But now, things have turned around and how. In less than a year, rentals have crashed, both existing tenants and for new deals. Retailers are renegotiating rent agreements more than once to get the most out of these trying times.
Sanjay Verma, Executive MD––South Asia and Australia, Cushman & Wakefield, said, “I would reckon that the rentals have fallen anywhere between 25% to as high as 50% in some cases over last year. And one has to put in context that last year was really the peak of last three–four years. So I think we are getting some bit of rationalization, certain degree of unreasoning in some places but you can only blame it to the market which is changing.”
Sources say that some big retailers stopped paying rentals until their demand of a 50% cut in costs was agreed. And with industry’s expansion on hold, developers had no option but to give in. In some cases, landlords themselves offered 60–70% lower rents but even then got no interested tenants. Bharti Retail has witnessed a 15–20% correction in rentals. Reliance Retail says it has managed 20–25%, even 50% in some cases.
Bijou Kurien, President–Lifestyle Vertical, Reliance Retail, said “A lot of this is very unique to developer. Some are renegotiating a lot more than the others purely because of their financial capability or their ability to hold on to their investments.”
Experts say in some regions, where rentals had shot up disproportionately, there is more correction to come.