Falling revenues are forcing fund-starved retailers to renegotiate rentals with property developers as a desperate means to combat the economic downturn, industry executives said.
The Future Group, which runs the Big Bazaar chain, has been forced to shut its retail venture at Ahmedabad, while RPG group’s Spencer’s has shut 56 outlets across India.
It helps that realtors are on the defensive in a weak market.
“There can be no better time than today for retailers to renegotiate rentals,” R Subramanian, managing director of the 1,650-store Subiksha chain, told Hindustan Times, adding he expected metro retail rentals to fall by 25 per cent over the next three months, while Balvinder Singh Ahluwalia, President, Koutons Retail Ltd. estimates the fall at 30 to 35 per cent.
Global realty consulting firm CB Richard Ellis says retail rentals have fallen by 10 to 20 percent in metros.
"I think that this is going to happen now across the market because of the structure of market (slowdown),” said Anshuman Magazine, Managing Director of its Indian unit. Retailers are also switching to revenue-sharing with developers, offering 3 to 5 per cent of annual revenues instead of fixed rents.
“Fall in rentals now would mean increase in rentals during the boom time, which is not a good option. Hence, we prefer revenue sharing,” said Samar Singh Shekhavat, vice-president at Spencer’s Retail.