How malls are re-calculating rentals, post lockdown
DLF has slashed rent by 50 percent, Phoenix has given its tenants a 30 percent rental waiver, and Express Avenue is collecting rent in line with in-store sales.
Retail consumption has plummeted to new lows and discretionary spending is at its worst. It comes as no surprise then that cash registers at malls won’t exactly ring as loud and often as they did before the COVID-19 pandemic. This reality has forced shopping malls across the country to re-look at rental policies in order that retailers are able to stay open amid the economic crisis.
Bengaluru-based Brigade for one has agreed to a 50 percent rental waiver for the lockdown months when malls were forced to stay shut. DLF charged tenants 25 percent of their pre-COVID rentals in June when the Centre allowed malls to reopen, and 50 percent of pre-COVID rentals in the July-September quarter. The developer hopes to collect full rent only in early 2021. Phoenix Mills, which runs Phoenix Marketcity and Palladium across top cities, has agreed to a 30 percent rental waiver for its stores.
Express Avenue: rents in line with in-store sales
Chennai-based Express Avenue went a step further and announced a 100 percent rental waiver between April and August 2020, when malls in Tamil Nadu stayed shut. Post-reopening on September 1, the mall has been benevolent in collecting rent, by allowing tenants to pay rent in line with what each store makes every month when compared to last year. For instance, if the mall’s H&M store makes just 50 percent of September 2019 revenues in September 2020, its rent is also half of what it would otherwise pay the mall.
“If a store has done 60 percent sales compared to last year, they will end up paying 60 percent rentals. If they have done 70 percent, they will pay 70 percent,” said Munish Khanna, Chief Revenue Officer, Express Infrastructure. “The moment they (stores) touch 80 percent of last year’s sales, they will start paying us full rent.”
All of Express Avenue’s stores have integrated sales data with the mall. “On a daily basis, we come to know how much business stores like H&M, Forever 21, Lifestyle, Calvin Klein, Tommy Hilfiger, Underarmor or Adidas have done,” said Khanna, “We then go about comparing it to how these stores fared last year on the sales front and decide rentals.”
The effect of mall and retailer being equal partners in the mall retail business has borne fruit, at Express Avenue. Of the mall’s 220 stores, 210 have reopened for business. In contrast, competitors Phoenix Marketcity Chennai and Palladium have only reopened 162 of their 315 stores within both malls.
‘Revenue-sharing the only way to keep business alive’
While big discounts and waivers are helpful for the moment, analysts say that most malls will be forced to consider revenue-sharing agreements in order to help their tenants stay afloat. This means tenants will have to part with a percentage of revenues to the mall-developer, as rent. The percentage number, mall expert Susil S Dungarwal says, could range between 5 and 20 percent.
“For the next one year, the industry will survive purely on revenue-share. Retailers and mall developers will have to accept this and move forward,” said Dungarwal, the founder of Beyond Square Feet, “After one year, if things go right, I see rentals coming back to the present agreement between retailers and developers. I don’t see a surge in rentals at least for the next three years.”
However, most malls are optimistic that the season of rental waivers and discounts won’t last long. This is mainly because these establishments are pinning their hopes on spending bouncing back in the festive season and staying positive in the medium term. Most developers are also banking on the elusive COVID-19 vaccine as an antidote to get shoppers back into malls. In fact, Express Avenue for one, believes that spending could be back to 80 percent of pre-pandemic levels by the festive season.
For the moment, though, footfalls ranging between 20 and 30 percent of pre-pandemic levels, dulling demand, empty multiplexes, and hardly any discretionary spending have cast a shadow on just how long mall retail can sustain, even with discounted rent.
First Published: Sept 10, 2020 8:55 AM IST
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