The beginning of the year 2020 saw a remarkable opening for the shopping mall industry. Industry experts predicted a smooth journey ahead, mall developers were bullish on the growth potential of organised retail keeping in mind the flourishing economy and industry experts including ANAROCK had predicted the launch of around 100 new malls spanning over 49 million sq. ft. pan India by the end of 2022. Then the pandemic hit, and it was pandemonium all around.
The subsequent global lockdown, shutdown of all economic activities threw the Retail and Shopping Centre industries into chaos. The growth scale became imbalanced in a matter of weeks and all predications were disproved.
Needless to say, therefore, that mall supply was severely impacted by the pandemic and the future of many upcoming malls/projects still remains ambiguous. In the COVID era, only 5 malls came up in India, in Gurugram, Delhi, Lucknow and Bengaluru, covering an area of around 2.75 million sq. ft. Mall developers in other Tier I, II & III cities and towns, unsure of what lies ahead, have yet to announce any launch dates.
Impact of COVID on Upcoming Projects
Upcoming projects had to face lots of challenges and situations during this period:
- No Revenue
- Construction Work Delays
- Shortage of Workers
- Delay in Clearances/ Paperwork since there was a pandemic-induced shutdown
- Financial losses, yet burdened with bank loan EMIs
- Rental Issues
- Retailers backing out from projects
- Employee Safety
As a result, many reached a dead end and were stopped permanently. Mall developers with more reputed brand images and brand values also suffered but managed to overcome this period with limited resources.
Rehan Huck, Retail VP, ILC Group, explains, “For the shopping mall industry, the pandemic turned out to be a complete bloodbath. As a result, only 5 malls out of 54 planned new malls could make it through in 2020. The situation became even worse for the upcoming malls and under-construction projects. Construction was prohibited for almost two months and this further delayed completion processes. Aside from this, there was a significant decline of up to 20-25 percent in the footfalls across all major shopping malls in the country even after the Unlock phase. Consequently, this led to more losses for developers and builders even after they completed the project. And brands too were hesitant in partnering with the new ventures during this period. Also, the fact that no policies or initiatives were announced for this sector during the Union Budget 2021-22 simply added to the industry’s woes.
Abhishek Bansal, Executive Director, Pacific Group added, “Post the unlock, we have been devising strategies like alternating labor on our locations, ensuring there is a required supply of raw materials. Medical facilities are available at the beck and call of the laborers working here.”
Abhishek Trehan, Executive Director, Trehan Builders highlights, “The delay in the construction process was one of the biggest worries for the under-construction projection. The existing malls are suffering a footfall decline of almost 20-25 percent due to the pandemic. This hints that things would be even more difficult for the new players to enter the market and capture a reasonable share. As aforementioned, brand collaborations are another challenge in front of them.”
“We have positioned our malls in the sustainable market at key locations to leverage on existing demands. Plus, we are building high-street models, with low maintenance and higher convenience of access through a neighbourhood angle. We focus mainly on a value-driven product mix, ease of access and convenience shopping, which has sustained demand even in troubled times,” he adds.
Pankaj Jain, Director, KW Group explains, “Such was the unexpectedness of COVID-19 that the retail real estate industry is still recovering as are retailers and consumers. Now that we are slowly limping back to normalcy, the industry has started rolling out new developments as well as mall enhancements. Based on new consumer behavior, we implemented new strategies for better footfalls in our malls. To support the brands in our malls, we gave them multiple options on their brand positioning and their business models, while keeping their business interest at the top of the priority list. Aside from this, revenue share with some capex support had been injected initially in some cases for long term sustainability and mutual growth. Our retailers have also been assured of getting the best possible sales numbers through different marketing campaigns out of the normal marketing calendar. I am confident that these joint efforts will help attain 100 percent mall success in upcoming months.”
“The past few weeks have seen increased footfall in malls and the immunization efforts of the Government will determine how quickly the situation returns to pre-COVID levels. Real estate companies have been cautious in the announcement of new malls with focus being entirely on regaining the lost footfalls and rentals in their existing malls,” says Benu Sehgal, President-Retail, Omaxe Ltd.
Real Estate: The Real Sufferer
The revival of the real estate industry has been quite slow so far. Keeping the upcoming shopping mall projects separate, even fully functional malls are suffering. While the footfalls and conversion rate has increased and the business has also resumed, but the losses that were reported in the financial year are yet to be covered.
“The real estate market has faced several disruptions in the past few years including Demonetisation, GST rollout, followed by the Real Estate Regulation Act. In March 2020, realtors were sitting on inventory that would take several quarters to clear and the pandemic just made things worse for the sector. The lockdown resulted in a sharp drop in demand for property, which resulted in an exponential decline in prices across segments and markets and by September, the number of quarters required to clear unsold real estate inventory had shot up even more,” says Huck.
According to Uddhav Poddar, Managing Director, Bhumika Realty when the lockdown happened, the situation was quite grim and worrying for the real estate industry. All construction activity was stopped and there was a lot of ambiguity as no one knew what was going to happen in the future. “However, we re-started the construction activities as soon as the government allowed the same following all safety measures, in fact we ramped up the work on our sites to make up for the lost period. All this work has had a positive impact, and in the last few months, we have seen a lot of enquiries coming for leasing the space in malls and in the last couple of months the conversions have also started to take place. On a general note, a lot of developers including us are doing business equal to pre-COVID levels.”
Dr Vishesh Rawat, Vice President – Sales & Marketing, M2K Group, sounds more hopeful of the current situation, saying, “We have seen a surge in demand for ready to move in residential apartments and plotted developments during the last 6 months and the sales transactions have exceeded the pre-COVID levels by a good margin. With the arrival of vaccines, the retail and commercial sector is also poised to grow significantly in 2021. Reducing numbers of COVID infections and growing confidence of shoppers will make the malls a hotspot again.”
“The positives that have emerged from the COVID-19 crisis, namely homebuyers’ inclination towards State Capitals and Tier II/III cities, preference for integrated townships which provide open, green and hygienic spaces besides large sized homes, increased preference for organised retail spaces etc. will form the cornerstone of the coming decades of growth in the real estate sector and overall Indian economy,” adds Benu Sehgal.
The ongoing pandemic has been an eye-opener for the entire industry not only from revenue and business aspects, but also in crucial factors such as health, consumer trends, mall design, investment and other business strategies.
“The COVID-19 pandemic was one of the rarest challenges that one can face during their lifetime. So, there were quite a few learning outcomes, changes that people are beginning to adopt as in their lifestyles. As soon as the pandemic hit, people started taking care of basic hygiene and sanitisation processes. Also, they were hesitant to visit malls soon after the unlock phase as they were afraid of getting infected with the virus. This makes it essential for all public places, including shopping malls to follow all the guidelines and protocols issued by the government. Undoubtedly, we could not do much about this unprecedented situation, however, we are now working towards a gradual increase in our savings to deal with any possibility of such extraordinary times in the future. Also, cost-cutting using renewable sources of generating energy and eco-friendly methods like rainwater harvesting systems in the upcoming projects are some other changes adopted for the long run,” explains Huck.
“The pandemic was a natural calamity that no one can imagine facing, let aside be prepared for. There were several changes/learnings for all the businesses and entrepreneurs working in almost every sector. Some of the basic changes that most outdoor businesses, including shopping malls, have done is prioritizing health and sanitisation of customers. Apart from this, social distancing and marking on floors to social distance is becoming a common practice. Businesses have also understood that technology is the future, and that they need to be dynamic enough to cope with the changing environment. Engagement has to happen by both malls and tenants digitally and offline. When we specifically talk about shopping centres, then e-commerce is our biggest rival. Hence, the players in the offline market need to be innovative and advance to co-exist with the inevitable competition from digital shopping,” says Trehan.
As per Benu Sehgal, consumer confidence is key. “The confidence and experience of safety and security will bring fence sitters and consumers back to malls. This has been the industry’s primary learning from the pandemic. Malls across India are making efforts in this direction. For example, in our upcoming mall Omaxe Chowk in Delhi, we will install Honeywell’s air filtration system that will keep AQIs below 50 as against an average AQI of 250 in Delhi are amongst other benefits to a healthy shopping experience,” she explained.
As per Dr Vishesh Rawat, mall designs with ventilation structures will be the in thing for new malls in the coming days. “More open areas and better ventilation will be an integral part of mall designs of the future. From the operations perspective, next level of cleaning and personal hygiene will also become a part of the routine,” he added.
Poddar emphasised on technology, saying, “We are making technological changes in our development. We are trying to go as contactless and touch-free as possible. Be it the elevators, entry and exits points, common area, lavatories, we are trying to make everything touch-free in all possible ways. We will also be engaging in a lot of virtual engagement with the customer. One change that this pandemic has brought in the consumer behaviour is that people now are keener in using the digital version and technology. People who used to do shopping manually are also using mobile phones to shop now on a regular basis. They are looking forward to the digital version of shopping, payment, delivery etc. The conversion rate has gone up by huge numbers. Today everyone can be reached virtually which was not possible six month months back. Even in real estate, we have reduced our spending on the outdoor media and other manual advertising activity and are doing the virtual campaigns in large numbers as it is reachable to a larger part of the community,” he added.
The Road Ahead
As Abhishek Bansal explains, “Our industry has seen some unfortunate and unforeseen times, and we expect government policies to support us towards development and some relaxation be granted to the infrastructure industry as that will bring down the price of raw materials.”
“Building agility and resilience is the key to facing uncertainty in difficult times. We must strive to be fit for growth by aligning costs with priorities and strategy, investing in differentiated capabilities, and using traditional and digital levers to execute these strategies. Rather than setting on a single fixed course, we must continually engage in scenario planning, constructing and evaluating an array of options that offer a broader view of the landscape and possibilities for success. We will be focusing more on community activities, experiences, entertainment and food,” says Rawat.
“We do realise that such “act of god” events occur once in a century. Even as malls and contact services will be adversely affected again, we are prepared to deal with any other eventuality that may arise due to changes in policy or macro-economic environment in the country,” says Sehgal.
“Customers are now more cautious about their safety, hygiene and wellbeing and these will form the new-normal in post COVID times. We have also allocated funds to help us tackle such a situation in the future,” adds Huck.
Uddhav Poddar feels that 2021 would mark the revival of the shopping mall industry. “If you ask me, real estate was actually not on track before COVID and is now coming back to normalcy. It is going to be healthier in the coming months. The lockdown period has left a huge impact on the lives and thought process of the people and they have realised their priorities. The investors also have realised that real estate is a tangible asset to invest in. In the last two three years, a new set of challenges in form of policy reforms, GST, NBFT and banking crisis created doubts over the real estate industry. Now with so much time has passed and emergence of new players, these challenges are not problems anymore. The developers are used to it now. Even the banking sector is again back on the lending process. The flow of the capital which was stopped in the lockdown period is now not a problem. The banks are ready to lend and the interest rates have gone down.”
“Prevention is better than cure. We are ready, even stronger will power and technology to face any such situation in the near future,” concludes Jain.