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July 19, 2008

End of Mall Mania?

Deepak Shenoy has an interesting post on the "Bad news and then more bad news" for mall developers and their tenants:
Remember how the funda worked:
* "Premium" apartments come up
* Malls come up nearby saying ok, these guys need to shop
* Apartment rentals and prices go up saying oh there are so many malls nearby. "Developed" area.
* Mall rentals go up saying look at the real estate prices here.
* Some big retailer sets up shop and promptly loses money but terms it a long term investment.
* Everyone else says heck, if he can lose money, so can we, so they also do the same thing.

Now someone's knocked some sense into everyone's head. (It's called "reality") So as real estate prices have come off the highs, and retailers vanish, soon mall and house rentals will follow. Ghost malls are likely to be common as developers, now flush with cash after the boom, decide they will "ride it out". They'll pay interest - increasing rates, btw - until they can bear it no more.
Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.