Indian retailers have realised that high rentals across malls in metros are adding to the stress on their business and rapid urbanisation, changing demographics, evolving consumer preferences, and the advent of new formats have created opportunities in tier-II and tier-III cities, according to a new report by US commercial real estate services firm JLL. The report, titled ‘Urbanisation, Aspiration, Innovation—The New Paradigm of India Retail’, was released at the India Retail Forum organised on 24-25 September in Mumbai.
The newer markets are where the growth and large population of aspirational India is. Those who go in early will surely build legacies, the report says.
Poor store efficiency across malls have become a challenge for most. Rent-to-revenue ratio has become a dominating metric to evaluate their store presence as against the top-line revenue. Omni-channel retailing and expansion in tier-II and tier-III locations, therefore, is a key strategy to mitigate the risks.
Leases are being renewed at steep premiums in malls where occupancy is around 90 per cent. As a result, many marquee malls have seen a three-fold jump in rentals. Premium brands are renewing their leases at almost twice the earlier rents. This has resulted in the tenure of mall leases being shortened, and thus, many brands are finding it difficult to survive under the burden, the report adds.
Tier-II and Tier-III markets offer many advantages, which include unexplored locations and 30-40 per cent lower real estate costs than those in metros and tier 1 markets.
