The rating agency Icra expects the rental income for mall operators to increase by nine to ten per cent year-on-year (YoY) growth in FY2024 and eight to nine per cent in FY2025, driven by healthy occupancy levels, estimated growth in trading values and rental escalations.
In H1 FY2024, the rental income for Icra’s sample set1 increased by 8.4 per cent YoY and the rating agency’s outlook on retail mall operators is stable.
Anupama Reddy, Vice-president and Co-group Head, Corporate Ratings, Icra said, “Retail mall operators witnessed a strong rebound in FY2023 in terms of footfalls and trading values and the trends continued in H1 FY2024. Backed by expected growth in footfalls, an increase in spending for footfall driven by premiumisation and strong urban consumption, Icra projects the trading values to increase by 14 to 15 per cent in FY2024 and record 10 to 12 per cent growth in FY2025 on a high base.”
Reddy added that segments like jewellery, electronics, apparel, beauty care products of premium brands and entertainment witnessed above-average consumption growth in the recent quarters, which is expected to continue in the near to medium term with strong consumer demand.
The private final consumption expenditure component of the Indian gross domestic product (GDP) has been increasing over the last four quarters, amidst higher spending by households.
As per the RBI’s Consumer Confidence Survey of September 2023, household spending has been buoyant over the last year on the back of higher essential and non-essential spending and is likely to remain higher over the next 12 months, which is expected to support retail sales for the tenants of mall operators.
The total grade A retail mall supply for the top six markets2 stood at 105 million square feet (MSF) as of 30 September 2023 and is expected to increase to 116 to 118 MSF by March 2025. Delhi NCR has the highest supply contribution of 30 per cent followed by Bengaluru (20 per cent), MMR (17 per cent), Pune (14 per cent), Hyderabad (13 per cent) and Chennai (six per cent).
Icra expects Delhi NCR, Pune and Hyderabad to account for 85 per cent of new supply in FY2025. Around ten per cent of the upcoming supply in FY2025 is pre-leased as of September 2023.
Across the top six cities in India, a new supply of nine to ten MSF and around six per cent MSF is expected in FY2024 and FY2025, respectively. Though the net absorption was healthy at 3.2 MSF in H1 FY2024, the vacancy levels rose marginally by 100 bps to 20 per cent as of September 2023 due to a new supply of 5.6 MSF, which has recently become operational and is yet to ramp up fully.
The rating agency expects occupancy levels to sustain at 81 to 82 per cent as of March 2024 (PY: 81 per cent) and improve to 82 to 83 per cent by March 2025.
