Malls plan rent hikes hearing cash counters ring at stores

Landlords across malls and high streets are increasing rentals by 15-25% after a two-year hiatus when retailers either got significant discounts or converted minimum guarantee agreements into revenue-sharing due to falling footfalls amid Covid-19 and various restrictions.

Several retailers saved nearly 20% of their annual lease during the last two years due to rent concessions, which helped curtail net losses. However, over the past few months, retail sales have outpaced the pre-Covid levels, triggering a fresh round of negotiations, companies said.

“We expect to reach the pre-Covid rental collection in 2022-23 if there are no further disruptions,” said Yogeshwar Sharma, chief executive officer of Select Citywalk, one of the most popular malls in New Delhi.

“Wherever the escalation was due, we have started the discussions… Some of the operators are asking for a 5% increase every year instead of a combined 15% after three years, for which we are open,” he said.

For many retailers, the revision was due in 2020, but malls were shut amid the lockdown and operators could not command higher rents. Now they can.
Malls plan rent hikes hearing cash counters ring at stores”The business is back to normal so there is no reason for us to not increase the rent,” said Pushpa Bector, executive director at DLF Retail that operates several malls in the National Capital Region. “We have already increased the rent by 15% in cases where escalation was due. In cases of lease renewal, the rental has increased by 20%, while it is 25% for new tenants.”

She said DLF Retail signed 180 leases during the two years of Covid and that “all our malls are registering growth in footfalls and revenue”. For retailers, rent as a percentage of sales is anywhere between 10-15%, one of the key cost components after inventory.

High real estate costs in India make it important for retailers to generate higher average price realisation per square foot of space to maintain profitability. Margins are expected to be under pressure, given sharp raw material inflation and rental costs.