The Rise of Vacant Malls: A Glimpse of Evolving Consumer Preferences

In 2023, there has been a rise in "ghost shopping malls" - those with a vacancy rate of 40% or higher. These vacant malls have seen a 59% year-on-year increase in the top 8 metropolitan areas of India, resulting in 13.3 million square feet of retail space remaining unoccupied. This loss in occupied retail space amounts to an estimated value of $800 million.

On the other hand, high-grade, premium shopping malls are thriving. This is driven by the trend of premiumization and a greater focus on providing enhanced consumer experiences. This has led to larger store sizes and better overall shopping experiences in these successful malls.

Additionally, new factory outlet malls are also expected to surge in India in the coming period.

The trend of "ghost shopping malls" - those with a vacancy rate of 40% or higher - is on the rise across India's top metropolitan areas. According to a report by Knight Frank, there has been a significant 59% year-over-year increase in the number of such ghost malls, resulting in 13.3 million square feet of retail space remaining vacant. This has led to a staggering loss in value amounting to $800 million in 2023.

The National Capital Region (NCR) recorded the highest inventory of ghost malls, with 5.3 million square feet of vacant space, up 58% year-over-year. Mumbai and Bengaluru followed closely, with 2.1 million square feet (up 86% year-over-year) and 2 million square feet (up 46% year-over-year) of vacant space, respectively. In contrast, Hyderabad witnessed a 19% decline in its ghost mall inventory, reducing it to 0.9 million square feet.

 The report suggests that while consumers may be gravitating towards online shopping or preferring to visit high-grade malls, lower-quality malls are struggling with high vacancy rates. Grade A malls, which make up 47% of the total shopping center space, maintain robust occupancy, foot traffic, and conversion rates, delivering value to customers. However, Grade C malls, characterized by high vacancy, are lagging behind.

 The thriving of high-grade malls is attributed to the trends of premiumization and a greater focus on providing enhanced consumer experiences. Retailers are opening larger stores and expanding their physical footprint to cater to the demand for better retail experiences, as evidenced by the decline in the share of smaller stores and the rise of larger formats.

 “Store is now more about experience than merchandising. Brands have realised that, and by expanding the store they are expanding the offering,” Pankaj Renjhen, COO and joint MD, Anarock Retail, had said.

 Mall developers are now focused on constructing larger-sized malls to offer shoppers a better overall experience. The average size of mall developments completed in 2023 has increased by 41%, from 276,800 square feet in 2022 to 389,900 square feet. Developers are creating bigger malls to provide elevated experiences, whether through entertainment, food and beverage offerings, or fashion.

 The new supply of retail space in shopping malls increased significantly in 2023, rising 72% to 59.48 lakh square feet across the top eight Indian cities. This reflects the growing demand from retailers. In 2023, 11 shopping malls became operational, covering a total of 59,48,395 square feet of space across these major cities. This is up from 9 malls totaling 34,49,222 square feet in the previous year. Hyderabad saw the completion of three malls, while Pune and Chennai each had two new malls. One mall each was added in the Mumbai Metropolitan Region, Delhi-NCR, Bengaluru, and Ahmedabad.

 Industry executives have indicated that malls are expected to attract over ₹20,000 crore in investment over the next 3-4 years. India's leading mall developers, such as DLF, Prestige, and Phoenix, are entering the next phase of expansion as top retailers continue to expand their store counts. For instance, DLF has started construction on a new 26-27 lakh square feet shopping mall in Gurugram, at a cost of around ₹2,200 crore, as part of its expansion plans. The company is also building a premium mall of around 6 lakh square feet in Goa.

 A new type of mall concept is set to witness a surge in India - factory outlet malls. At least half a dozen such malls are being planned, similar to the trends seen in the US and UK. Developers are attempting to combat the challenge posed by e-commerce and deep discounting by offering branded products at discounted prices year-round in these specialized retail spaces. This segment has been largely unorganized in India so far.

"Retail will not be limited to malls and high streets, but move to highways with more infrastructure being built. On highways, factory outlets mall along with F&B and recreational makes sense. In coming years, this is going to be a popular concept," Susil S. Dungarwal, founder of Beyond Squarefeet, a shopping mall specialist company, had told ET.