The Rise and Fall of Shopping Malls in India: Navigating the Changing Retail Landscape
While the number of high-performing Grade A malls has proliferated across India, a parallel trend has emerged: a substantial 59% year-on-year increase in underperforming shopping centers, often referred to as "ghost malls." These struggling retail spaces account for approximately 13.3 million square feet of vacant retail area. This blog post delves into the reasons behind Indian shoppers' abandonment of Grade C malls and explores how some of these properties are being repurposed to capitalize on valuable land parcels.
Grade Distribution of Shopping Centers
As of 2023, the breakdown of shopping center stock across India is as follows:
- Grade A: These premier malls boasting high occupancy rates, a diverse tenant mix, strategic locations, and proactive management represent 47% of the total shopping center space, encompassing 58.2 million square feet.
- Grade B: Occupying a middle ground with decent occupancy and tenant mix, Grade B malls contribute 31% of the total space, equivalent to 39.7 million square feet.
- Grade C: These struggling malls, grappling with high vacancy rates, a less attractive tenant mix, and often ineffective management, constitute the smallest share at 22%, covering 27.2 million square feet of leasable space. (Source: Knight Frank India survey)
Defining Ghost Malls
Ghost malls are characterized by persistently low performance, often exceeding a 40% vacancy rate. In 2023, the number of ghost malls climbed to account for 64% of the total mall count, a notable increase from 57% in 2022 across eight major Indian cities. The total leasable area classified as "Ghost Shopping Centers" reached 13.3 million square feet in 2023, marking a significant 59% surge from 8.4 million square feet in 2022.
The Fate of Underperforming Malls
According to the Knight Frank survey, these underperforming malls often meet one of several fates, often involving demolition to make way for residential or commercial projects, permanent closure, or auctioning off the property as valuable land assets in prime locations. Frequently this repurposing process is aimed at meeting a growing demand for co-working spaces, or residential units which has seen significant growth since after the effects of the recent pandemic began to ease up and recover.
Why Shoppers Shun Grade C Malls
Several factors contribute to the decline of Grade C malls:
- The Rise of E-commerce: This has fundamentally altered consumer behavior, offering convenience and a wider selection of goods, increasingly cannibalizing the reasons for visiting physical retail stores.
- Subpar Mall Attributes: Poor design, unappealing brands, ineffective management, lack of maintenance, uninviting exteriors, insufficient surrounding infrastructure, and fierce competition from Grade A malls all contribute to declining foot traffic and ultimately viability of retail space like that of Grade C malls.
Repurposing for Residential Development
In Tier 1 cities like the National Capital Region (NCR), Mumbai, and Pune, a notable trend has emerged where certain Grade C shopping centers have been demolished to create space for urgently needed residential developments. "Such ghost malls are repurposed primarily due to shifting consumer preferences, changes in retail dynamics, and economic factors that render their original purpose unsustainable," observes Vivek Rathi, National Director of Research at Knight Frank India.
Ghost Mall Hotspots
The Knight Frank survey identifies 64 ghost malls across eight cities, representing 75% of the total 125.1 million square feet gross leasable area. The following is a breakdown of ghost malls, their number, and the gross leasable area they comprise by city in million sq ft:
- Delhi-NCR: 21 (5.3)
- Bengaluru: 12 (2)
- Mumbai: 10 (2.1)
- Kolkata: 6 (1.1)
- Hyderabad: 5 (0.9)
- Ahmedabad: 4 (1.1)
- Chennai: 3 (0.4)
- Pune: 3 (0.4)
Repurposing Challenges
Repurposing ghost malls often encounters significant hurdles due to zoning restrictions, permit conversions, challenges obtaining the required legal documentation, and perhaps primarily in the complex process of strata ownership where obtaining a common ground among multiple owners can be exceedingly onerous or even impossible. Moreover, repurposing is typically expensive, requiring substantial investment and structural renovations, which may encounter unforeseen problems or require significant refitting costs, to convert retail spaces into residential, office, or educational facilities after a financial decision for repurposing has been made. Market demand also necessitates thorough vetting to ensure the lasting viability after repurposing and potential return on investment.