Why India's Big City Shopping Malls Are Dying Out

BANGALORE, India --- It's midday at the Royal Meenakshi Mall, and I walk past a sight that’s not too unusual: behind the door of a third floor jeweler stands a guard, but not a single cashier. The guard looks relaxed; the threat of theft is slim. The prospect of a shopper coming in is even slimmer.

In the spring of 2011, the shopping center at the southern edge of Bangalore opened in an attempt to rival the city's largest, Mantri Square. At 1.7 million square feet, the year-old Mantri mall was, at the time, the nation's largest. Last year, it lost its brief title to a behemoth destination in Mumbai.

A decade ago, when the country's economic growth was escalating, shopping centers like these three started to sprout furiously in large Indian cities. They quickly became staples of the urban landscape. Air-conditioned and remarkably pristine, they are filled with gaudy interiors, luxury brand names and Western fast-food outlets. Some have soaring condos in their backyards. The malls tower over street corners, often thickening the already heavy traffic with their visitors, primarily the still small chunk of cities considered middle class.

Now, though, it looks like many of them may have outgrown the shopper. Even when crowded, the malls' stores often struggle to bring in enough sales.

"There was an initial euphoria and a herd mentality in developing malls," explains Shubhranshu Pani, managing director of retail services for Jones Lang LaSalle India, a real estate consultancy in Mumbai. When the global recession hit, spending tapered off. "The retailers started realizing that consumption is not able to sustain rents," he says.

This past summer, analysts began pointing to shuttering malls as a harbinger of India's still dragging economy. Figures from this fall show that retail net absorption fell by nearly 60 percent from last year. That is, the nation added far less new mall space. And the trend isn't set to turn.

In 2006, around the peak of the mall boom, 80 shopping projects were slated for Bangalore alone. Roughly half of them, by Pani's count, have been shelved. According to JLL, seven malls are set to open this year in Mumbai. None are planned thereafter.

For investors, the shift is a troubling sign for corporate India. BM Shivakumar, a citizen activist in Bangalore, recently released documents that show the city's Development Authority has failed to collect roughly $2.8 million in unpaid mall rents. The BDA has leased land to 15 shopping complexes, with 774 shops and offices, according to the papers Shivakumar uncovered using RTI, the Indian equivalent of FOIA.

Some mall tenants, he claims, have not paid the city rent for seven years in a row.