Retail Space Development Falls Short in India Amidst Economic Slowdown
Real estate developers like DLF and Parsvnath significantly missed their targets for new retail space openings in 2008, as the retail sector faced a decline in the vacancy rates. A study by Cushman & Wakefield revealed that developers failed to deliver 11 million square feet of retail space last year, a considerable 54% shortfall. Of the 74 malls planned across eight major Indian cities at the start of 2008, only 34 were completed.
NCR Developers Face Significant Shortfalls
The National Capital Region (NCR) experienced the most significant gap, with developers delivering only 4.7 million square feet of retail space compared to the projected 7.1 million square feet. This trend of restricted supply is expected to persist in 2009 across major cities, impacting already elevated vacancy rates and reflecting difficulties in project delivery.
High Vacancy Rates Impact Operational Costs
"For any developer, the vacancy level should not cross over 5%. The vacancy level of 16% 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 substantial 16% vacancy rate highlights the challenges faced by malls in covering their operational expenses. The discrepancy between anticipated and actual occupancy rates has contributed significantly to this issue.
Economic Slowdown Impacts Retail Sector Growth
The Indian organized retail sector, which experienced 25% growth in 2007, prompted developers to announce ambitious retail projects. Their projections anticipated a growth rate exceeding 35%. However, the economic downturn led to a significant decline in retail sector growth, down to 15% in 2008. Consequently, developers have now postponed these projects by one to two years.
Project Delays and Cautious Expansion
"From the projected supply of 20.8 million square feet space in the first quarter of 2008, we will see a spill over of about ten million square feet development in 2009-10. Lack of funds leading to construction delays and cautious expansion by retailers have resulted in slow absorption of retail space in malls,” said Mahajan. The combination of funding shortages causing construction delays and retailers' cautious approach to expansion has further exacerbated the slow absorption of retail space within these developments.