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Pressure on rentals to continue post March 21

 

Pressure on rentals to continue post March 21

 

The uncertainty around rental negotiations in FY22 continues, brands and retailers feel the support on rentals should continue as long as it is required, as they fear extension of Covid-induced SOPs, social distancing norms, and overall reduction in physical interactions. Meanwhile, consumption across India has barely touched about 50 per cent on an average, buying has slowed down after pent up demand and festival season was over.

As per a December report by BCG on how India shops, spends and saves in the new reality, “In apparel, purchase decision was primarily triggered by social/celebratory occasions (accounting for 42 per cent triggers). However, the single largest trigger now is functional — clothes for home workouts, an additional pair of jeans due to daily washing, worn-out innerwear replacement, etc.”

Discussions on for rentals in FY 22

“We are already having discussions now to plan for the next financial year. Going ahead, we don’t rule out a rental correction — about 15-20 per cent lower than what it was pre-Covid, as the situation in metros is definitely quite bad as compared to small towns when it comes to mood and sentiment,” said Siddharth Bindra, MD, Biba to Financial Express.

Olive group of restaurants founder AD Singh, too, expressed similar concerns. He feels the way forward on rentals would depend on prevalence of virus and people’s comfort about stepping out “which is quite unpredictable”. Support on rentals should be given as long as it is required.

Mall operators awaiting government action plan

Mall operators too are waiting for more clarity as footfalls would now be determined only after government rolls out the immunization program. On rental front, mall owners who had extended slab-wise discounts till March, say rents are already down by as much as 25 per cent in some places. Omaxe president (retail), Benu Sehgal points out Covid-19 has had a painful impact on all rental properties and in some cases, rental income dropped almost 25 per cent.

While some retailers have shut stores, others operated with renegotiated rentals. Increased consumer spending witnessed in last few months coupled with news of vaccine, may spur up demand in coming quarters of next year. With new collections, expectations of shoppers returning to malls has gone up, all this has reignited hopes of a bounce back in rentals, which may be a concern with brands and retailers and engage in negotiations with mall owners already stressed with existing discounts in rentals.

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