Tension builds up between malls, retailers over proposed rental changes

A proposal by leading malls in India to increase rentals every year has led to friction with brands as retailers want to retain the existing system of rental hikes every three years, according to a report in The Economic Times.

Large retailers, who operate a number of stores across the country, are opposing the move by malls as it will increase their expenditure considerably. Discussions are underway to arrive at a decision acceptable to all parties.

Malls usually sign 9-year agreements with retailers with a rental hike of 15 per cent.

The report said by increasing the rent by 5 per cent every year retailers will have to shell out about 17 per cent in lease costs in three years.

“It does not make any sense because we sign our properties for long term which is generally 12-15 years. An annual escalation in rent will not be viable and we would want to not go ahead with such short term demands,” an unnamed chief executive officer at a departmental store chain told ET.

Rajendra Kalkar, president-west at Phoenix Mills, which operates more than half a dozen malls in Mumbai, Pune and Bengaluru, and in some tier-2 cities told the publication that rent hikes are in line with the original agreed terms of the agreement. But in the new agreements, whether to go for an annual hike is being negotiated on a case-to-case basis.

If the rent is indeed hiked, single-brand retailers say they may be able to absorb the rent inflation since the demand appears to be strong right now.

Mall developers said they will ask for a 20 per cent rent hike in three years given the inflation and cost of raw materials.