The Rise of Ghost Shopping Centres

With the significant  surge in  poorly performing retail assets across cities beyond metros, retail assets ( both malls and high street ) have seen a sharp rise in ghost shopping centres, locking retail value of Rs 67 billion.

Knight Frank India’s latest report, ‘Think India Think Retail 2024 – Shopping Centre and High Street Dynamics Across 29 Cities, records a sharp rise in low performing retail assets with approximately 13.3 million square feet (mn sq ft) of retail shopping centre space categorised as ‘Ghost Shopping Centre’. There has been an increase of 59 percent year-on-year (YoY) in Ghost Shopping Centre by Gross Leasable Area (GLA) since 2022 in the prime markets while the number of shopping centres  moved to 64 shopping centres by the end of 2023 over 57 in 2022. As a result of the rise in Ghost Shopping Centres,there is an estimated  loss of value to be at INR 67 billion  or USD 798 million in 2023.

National Capital Region (NCR) accounted for the highest Ghost Shopping Centre stock measuring at 5.3 mn sq ft (rise of 58 percent  YoY), followed by Mumbai with 2.1 mn sq ft (rise of 86 percent YoY) and Bengaluru with 2.0 mn sq ft (rise of 46 percent YoY). Hyderabad is the only city to record a decline in the Ghost Shopping Centre stock by 19 percent YoY to 0.9 mn sq ft in 2023.

In tier 1 cities the total number of shopping centres have reduced in a period of one year. Despite new addition of 8 new retail centres, total number of shopping centres reduced to 263 in 2023 as 16 shopping centres were shut down over the last year. Underperforming shopping centres were either demolished due to reasons such as developers undertaking residential or commercial developments or were permanently closed or auctioned.

This comprehensive report that  delves into the retail real estate markets beyond the top-tier markets, covers 340 shopping centres and 58 high streets across 29 Indian cities,  meticulously examines retail locations in the selected markets to compile a comprehensive compendium of store-level information.Shopping centres in distress grapple with ongoing hurdles, compounded by fresh additions ,worseniing their already elevated vacancy rates. This surge has led to a rise in the count of shopping centres labelled as ghost shopping centre stock. Such a scenario offers institutional investors the chance to explore avenues for repurposing or revitalizing their retail portfolios , while developers can seize opportunities to monetize these assets through repurposing or redevelopment efforts.

GHOST SHOPPING CENTRES ACROSS TIER 1 MARKETS

Source: Knight Frank 

According to Knight Frank 2023 research, India has a total shopping centre stock of 125.1 million sq ft. The top 8 Indian cities constitute 75 percent of the total gross leasing area of 94.3 million sq ft across 263 shopping centres while Tier 2 cities constitute 30,8 mn sq ft Of the top 8 cities, NCR (31.3 mn sq ft) and Bengaluru (15.6 mn sq ft) were the top three cities in the pecking order of gross leasing area available in shopping centres. Among the Tier 2 cities, Lucknow (5.7 mn sq ft) Kochi (2.3 mn sq ft) and Jaipur (2.1 mn sq ft) were the leading three cities in terms of gross leasing area available in shopping centres. Lucknow has emerged as a key player with an impressive share of 18 percent gross leasable area within Tier 2 cities.

TOTAL RETAIL GLA IN TIER 1 CITIES 

TOTAL RETAIL GLA IN TIER 2 CITIES

Overall shopping centre vacancy across  leading eight cities in India has improved from 16.6 percent  in 2022 to 15.7 percent in 2023, noting an 87-basis point reduction.  The overall shopping centre vacancy includes  Ghost Shopping Centres. However, upon exclusion of Ghost Shopping Centres from the stock in the leading 8 cities, the shopping centre health in India improves dramatically from 7.4 percent in 2023 due to the excellent performance of Grade A assets and reasonable occupancy in Grade B assets.

 “The momentum of consumption, propelled by rising disposable incomes, a youthful demographic, and urbanization, tilts in favour of the organized retail sector. An enhanced retail experience remains crucial for shoppers, highlighting the significance of physical retail spaces. Grade A malls have notably excelled, maintaining robust occupancy, foot traffic, and conversion rates, thereby delivering value to their customers. Conversely, Grade C assets classified  as Ghost Shopping Centres are lagging , prompting landlords  to take action to rejuvenate or divest such properties”,says Shishir Baijal, Chairman & Managing Director, Knight Frank India.

The appetite for expansion has led to increase in preference for Grade A assets at an all-time high. Leading to the high double-digit vacancy in Grade C structures as performance and operational metrics of better performing malls improved. Ahmedabad and Kolkata have witnessed a sharp rise in vacancy compared to the last review period, as there is scope for infusion of institutional-owned shopping centre stock and development of premium properties in these cities.

Of the 340 operational shopping centres across 29 cities, Grade A stock with GLA of 58.2 mn sq ft  comprise 82 assets. Grade  A shopping centre stock, with enviable occupancy, strong tenant mix, good positioning, and active mall management, contributed 47 percent to the overall shopping centre space across the country. Grade B shopping centre stock, with decent occupancy and tenant mix, contributed 31 percent with 39.7 mn sq ft. Grade C stock, on the other hand, with high vacancy rates, inferior tenant mix, poor mall management, contributed the lowest with 22 percent as 27.2 mn sq ft leasable space is locked in these assets.

 COMPARISON OF DIFFERENT GRADES – ALL INDIA

Source: Knight Frank Research

 SHOPPING CENTRE DENSITY: CONTRASTING RETAIL LANDSCAPES IN TIER 1 AND TIER 2 CITIES

Among Tier 1 cities, Bengaluru stands out with a notable shopping Centre density of 1,147 sq ft / 1000 people, reflecting its robust retail infrastructure and commercial vibrancy. Following closely, Pune and NCR also demonstrate substantial shopping Centre density values of 1,142 sq ft / 1000 people and 949 sq ft/ 1000 people respectively, indicative of well-developed retail landscapes catering to their sizable urban population. Conversely, Kolkata appears at the bottom among Tier 1 cities, with a shopping Centre density of 33 sq m (357 sq ft), suggesting a relatively lower concentration of shopping centre stock compared to its counterparts. The national average for India is estimated at 710 sq ft / 1000 people.

Moving to Tier 2 cities, Mangaluru emerges as the leader in shopping centre density, amongst all city types, with a striking density if 1,884 sq ft / 1000 people indicating a high penetration of organized retail spaces, i.e., – Shopping Centres relative to its population size. Followed by Lucknow with a significant shopping centre density value of 1,439 sq ft / 1000 people, underscoring its robust commercial infrastructure catering to urban demands. Outstandingly, Chandigarh and Bhubaneshwar also showcase a notable shopping Centre density figure of 1,325 sq ft and 1,250 sq ft per 1000 people which is more than all the Tier 1 cities, reflecting a thriving retail landscape.

Highest shopping centre density

Source: Knight Frank Research, World Population

RETAILER TRENDS – APPARELS AND F&B LEAD OCCUPANCY 

The report has projected the potential revenue of the shopping centres across 29 cities to reach  USD 14 billion during FY 2024-25.