High rental prices for Indian real estate have proven one of the biggest stumbling blocks to growth in the county’s retail market, reported the Times of India.
Rapid growth from India’s retailers coincided with a peak in rental prices, but with the Indian economy slowing and rents undergoing a ‘correction’, retail chains across the country are negotiating hard for cheaper rates.
The potential savings are significant, according to Indian retailers: “We are actively renegotiating rentals across formats and hope that, on an average, this would bring down costs by about 20-30 per cent,” said a Reliance Retail spokesperson.
According to real estate experts, rents could potentially drop even more than that.
“The headroom for reducing rentals could be anywhere between 10-35 per cent. In exceptional cases, it could even go up to 40 per cent. The exact amount would depend on the location,” predicted Pranay Vakil, chairman of of real estate services company Knight Frank.
Aditya Birla Retail, one of India’s largest chains with about 660 stores, is an example of the problems the sector has been facing from rental costs. Since September 2008 the group has closed or relocated 50 stores, in part due to high rents.
“We hope to garner a very sizeable amount from renegotiating rentals,” said Thomas Varghese, CEO, Aditya Birla Retail.
“We are hopeful there will be softening of rentals. If this does not happen, in certain cases we will move out if the rental to sales ratio is not good enough.”
