Mumbai: Retail mall operators are in for rental growth momentum this fiscal with around 10 per cent incremental growth, on the back of a robust rental income and footfalls last fiscal, according to a report. The rental income growth reported last fiscal was almost 27 per cent higher than the pre-pandemic levels.
The optimism arises from the continuing improvement in footfalls and the resultant uptick in retail sales, which will lead to a healthy net operating income, Icra Ratings said in a report on Thursday.
According to Anupama Reddy, vice president at the agency, the rental income expanded by a strong 78 per cent year-on-year in FY23, which was also 25-27 per cent more than the pre-pandemic levels. This was driven by higher revenue share backed by an increase in retail trading and occupancy levels.
While the footfalls into malls reached 90-95 per cent of pre-pandemic levels in FY23, trading by value recovered to 125-127 per cent, backed by an increase in spend per footfall. It is due to higher disposable income and preference for experiential shopping, especially for premium products, Reddy said.
The same trend is likely to continue this fiscal as well, leading to better revenue for operators, she said.
The agency expects rental income for the retail mall operators to increase by 8-10 per cent in FY24, on the back of an expected 4-5 per cent improvement in trading value with healthy sales across jewellery, electronics, apparel, and an increase in spending towards food, beverages, and entertainment.
The report sees rentals increasing by 3-4 per cent in FY24, driven by contracted escalations/lease renewals at higher rates due to healthy occupancy of retail malls.
The agency has a ‘stable’ outlook for the sector.
Across the top six metros, the incremental supply stood at 7 million square feet as against a net absorption of 4 million square feet, resulting in an increase in vacancy levels to 19 per cent in FY23 from 16-17 per cent in the previous two fiscals.
Despite healthy leasing, vacancy levels are expected to remain 18-19 per cent this fiscal, given the high new supply of 9-10 million square feet.
Delhi-NCR and Chennai will account for around 60 per cent of the new supply this fiscal, while 17 per cent of the upcoming supply in FY24 has already been pre-leased, the report said.