Malls are recovering faster after the second wave compared to the first wave, supported by a rapid easing of restrictions and pent-up demand, Crisil Ratings said on Thursday.
With retail sales in malls picking up strongly after reopening, rent pressures for mall owners are likely to be lower this fiscal year, requiring fewer exemptions compared to the previous fiscal year, it said.
Rental income for shopping center owners will fall to 80 to 85 percent from pre-pandemic levels this fiscal year, compared to 55 to 60 percent the previous fiscal year. Also, while their liquidity may also hurt this fiscal, strong sponsorship and fundraising initiatives will bolster credit profiles, according to an analysis of the 14 best shopping malls in India rated by Crisil Ratings.
Crisil Ratings director Anand Kulkarni said malls in top-tier cities – except Mumbai and Pune – have reopened more quickly after the second wave. The median closure period for the top eight cities was 7 to 8 weeks, compared to 13 to 14 weeks during the first wave. after reopening – a level that took four to five months to reach after the first wave. Improving consumer confidence, driven by faster vaccinations, pent-up demand and discount sales by major retailers have contributed to the recovery,” he said.
An intense third wave leading to shopping center closures poses a downside risk to these estimates. Retail sales and consequently shopping center rental income could contract by up to 10 percent if the third wave impacts the festival season in the third quarter, which is generally the most productive period for shopping centers.
The recovery for most tenant categories such as clothing, cosmetics, electronics and luxury — which account for 75 to 80 percent of shopping center owners’ revenues — was more than 70 percent of the level of last fiscal year. before the pandemic These categories should recover faster thanks to pent-up demand, which will reduce the burden on shopping center owners due to fewer housing benefit exemptions.
The cadence of recovery will vary for other segments contributing to balance sheet revenue. Food and beverage, cinema and family entertainment centers are expected to recover only gradually. A revival in these segments is critical to increasing visitor numbers. Such segments will also suffer from capacity loss due to shutdowns and may increasingly adopt a higher revenue share model for most of the current fiscal year. This will have a moderate impact on shopping center rents until retail sales from the weaker segments improve significantly.
Crisil said the pace of recovery will also be in different geographic areas depending on the knock-on effect of the pandemic: Malls in southern states and Maharashtra will take longer to recover compared to those in the north.
Net, while shopping center owners’ rental income is likely to be better than last fiscal year due to a likely strong recovery in the second half, the full recovery to pre-pandemic levels may not happen until next fiscal year.
While shopping center performance may remain weak in the near term, investor confidence appears to have improved, as evidenced by equity investment, asset development financing and outright asset purchases. destination” for entertainment, Crisil said.
