A report states that rental income for retail mall operators is expected to increase by 7 to 8 per cent year-on-year (YoY) in current fiscal (FY2025)
Driven by healthy occupancy levels, growth in trading values and rental escalations, the rental income for retail mall operators is expected to increase by 7 to 8 per cent year-on-year (YoY) in FY25 and 8 to 9 per cent in FY26, according to a report by Icra. A new supply of 9 to 9.5 million square feet is expected in FY25 and FY26, respectively across the top six cities in the country.
These cities include (Bengaluru, Chennai, Delhi NCR, Hyderabad, Mumbai Metropolitan Region (MMR) and Pune. The vacancy levels rose to 21 per cent as of December 2024 due to higher new supply, which has become operational recently and is yet to ramp up fully. Icra expects the occupancy levels to sustain at 79 to 80 per cent as of March 2025 and remain at similar levels by March 2026
The rating agency estimates that the net absorption of commercial office leasing across the top six cities is likely to increase by 10-11 per cent to 59 to 60 MSF in FY2025 and witness a further growth of 3 to 4 per cent in FY2026 on a high base. Despite an influx of a huge supply of 125-130 MSF in FY2025 and FY2026, the vacancy levels are expected to remain range-bound at 14.5 to 14.7 per cent by March 2025 and improve to 14.0 TP 14.5 per cent by March 2026, supported by resilient absorption trends.
“The consumption growth for Icra’s sample set of retail mall operators is expected to moderate to 6 to 7 per cent in FY2025 compared to 9 per cent in FY2024 on account of the slowdown witnessed in H1 FY2025 due to the General Elections, heat waves and the extended monsoons. Consumption is expected to ramp up in H2 FY2025, driven by the festive and wedding season, said Anupama Reddy, Vice President and Co-group Head- Corporate Ratings, Icra.
In addition, segments like hypermarkets, food, apparel, accessories and jewellery are expected to drive consumption with recovery in family entertainment centres (FEC). Trading values are expected to witness 8 to 9 per cent YoY growth in FY2026. However, the increase in digital penetration and continued threat from e-commerce and q-commerce players, particularly in the retail (fashion) segment, which is extending to some of the premium brands, is a major challenge for the retail mall developers, Reddy added.
The credit profile of the mall operators is expected to remain stable. The leverage ratio for the malls, measured by debt-to-NOI, is estimated to sustain at the previous year’s levels of 4.6 to 4.8 times as of March 2025 and improve to 4.2 to 4.5 times as of March 2026, supported by an increase in the NOI.
Consequently, the debt service coverage ratio is expected to remain comfortable at 1.45 to 1.50 times in FY2025 to FY2026 compared to 1.4 times in FY2024, Icra stated.
