Speaking their mind on what retailers want, the expert panel at India Shopping Centre Forum shared their approximations on what percentage of revenue is affordable to be paid as rentals and what percentage of the estimated rental would be comfortable as minimum guarantee (MG) in case of MG + revenue. Developers can take a cue.
Speaking for grocery hypermarkets, of about 50,000 square feet, Prakash Menon, head business development, Aditya Birla Retail Ltd, said that their business model cannot take anything more than 3.5 per cent of net sales as rental. Having said that he added, “Most of the agreements that we are structuring today have got a minimum guarantee or 3.5 per cent of net sales, whichever is higher.” Then depending on the rate that exists in that mall, he explained further, “If the mall is going at Rs 40 and we are giving a MG of Rs 25, then we allow the developer to share in the upside.” While all their transactions so far do not involve a cap, but eventually they may introduce some level of capping, following more stores and a better understanding of what sales per sq ft they can achieve.
In context of the Indian premium sector, Sanjay Kapoor, MD, Genesis Colors, said, “The revenue sharing that we are comfortable would be between 12 and 14 per cent and in the luxury space we could go from 15 to 17 per cent.” Considering a mix of MG and revenue share, he said, “If the appropriate market rentals were ‘x’, we believe the MG should be 50 per cent of ‘x’.”
RA Shah, general manager, projects, Trent Ltd, put it simply as, “Whatever is the gross margin, one-forth can be paid as rent; if we can achieve Rs 1000 sales per sq ft per month.”
Nirup Malkani, general manager, sales, Pepe India, said “For us 12 per cent of sales would work,” and they are open to both models as long as it’s a win-win situation. Whereas, Shashank Kulkarni, head – real estate, McDonald’s India, would like anything in the range of 4 to 6 per cent of revenue as rentals. He further clarified that they typically we don’t like doing MG, and would always prefer revenue sharing, anywhere around 50 to 60 per cent of market rent.
Durai Rajan, VP – business development, Mahindra Retail, said “Somewhere around the eight per cent mark would be good as percentage of revenues, proportion of revenue share within the total rent component or in relation to the MG, probably could be about three times.”
Apurva Gupta, head –retail, India, CBRE, said, “It depends upon format to format and also factors such as size and location come into play. For instance, for food it could start from as low as two per cent, whereas in case of apparel or high fashion it could go up to 80 per cent. Also, it’s higher for a metro location.”
Providing an international perspective, Gordon Mackay, president, Meridian Retail Group, a Canada-based retail consulting firm, shared the model as practiced in North America. “The model is percentage rent v/s the minimum, so there’s an equation – square footage of the unit multiplied by the base rent divided by the percentage factor creates a break point; for every dollar in sales after that break point the tenant pays a percentage back to the landlord. That percentage for a jeweler could be eight per cent, for apparel could be six per cent, for food it could be eight per cent,” he said. With reference to minimum guarantee, he responded, “Our group would be comfortable with a 10 per cent bottom line towards all operating costs associated with their real estate.”
— Soma Chaturvedi