8-9% Rental Growth For Mall Operators In FY2025

Retail trading values expected to increase by 14-15% in FY2024 and 10-12% in FY2025 led by strong consumer demand. ICRA expects the rental income for mall operators to increase by 9-10% YoY growth in FY2024 and 8-9% 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 set increased by 8.4% YoY. ICRA’s outlook on retail mall operators is Stable.

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, increase in spend for footfall driven by premiumisation and strong urban consumption, ICRA projects the trading values to increase by 14-15% in FY2024 and record 10-12% growth in FY2025 on a high base.

The Private Final Consumption Expenditure component of Indian 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 markets stood at ~105 million square feet (msf) as on September 30, 2023, and is expected to increase to ~116-118 msf by March 2025. Delhi NCR has the highest supply contribution of 30% followed by Bengaluru (20%), MMR (17%), Pune (14%), Hyderabad (13%) and Chennai (6%). ICRA expects Delhi NCR, Pune, and Hyderabad to account for 85% of new supply in FY2025. Around 10% of the upcoming supply in FY2025 is pre-leased as of September 2023.

Across the top six cities in India, new supply of 9-10 msf and around 6 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% as of September 2023 due to new supply of 5.6 msf, which has recently become operational and is yet to ramp up fully. ICRA expects occupancy levels to sustain at 81-82% as of March 2024 (PY: 81%) and improve to 82-83% by March 2025.