Over the past week, several of the best known restaurants and cafes in New Delhi’s popular Khan Market — Full Circle Bookshop and Cafe Turtle, Sidewok, and Smoke House Deli — announced they were shutting. Owners said they had failed to negotiate their extremely high rentals with property owners — and that they could no longer afford to continue in India’s priciest commercial space, given the new norms for operations as the economy opens hesitantly under the cloud of the coronavirus.
Why are some restaurants choosing to exit Khan Market?
The three restaurants that have decided to leave will continue to operate in other locations such as Nizamuddin East, Greater Kailash, and Connaught Place. The nationwide lockdown, which started on March 25, hit the restaurant business hard. While some managed to focus on delivery services, for many it was an unviable model because of very little demand and the high costs of running kitchens and overheads such as power and water bills.
Restaurants have now been allowed to reopen, but with a set of guidelines that include norms for social distancing (6 feet), and sanitising the premises. This has added to the costs, because the restaurants can no longer seat as many patrons as they did earlier.
Then, there is the overall mood of fear and apprehension that is continuing to keep people indoors, especially as case numbers in Delhi continue to rise alarmingly. There is also the general reduction of disposal income among a large section of potential customers.
The fear of transmission has also meant that the number of people getting food delivered to their homes has dropped drastically. Many restaurants are saying they hardly have any orders. Some food delivery apps have diversified operations, and are now delivering groceries to make up for the loss of business in the food delivery space.
Are restaurants in Khan Market suffering extra badly?
In some ways, yes. Khan Market, by virtue of being the most expensive commercial space in the country, is also the one where fixed costs are the highest. According to Cushman and Wakefield’s annual report on the world’s most expensive shopping streets, in 2019, Khan Market was the 20th most expensive in the world, with annual rents averaging $243 — or about Rs 18,500 at current exchange rates — per sq foot. (Which would mean that the monthly rent for even a small 100 sq foot space would be more than Rs 1.5 lakh.)
Indeed, for some restaurants, the rent at the location amounts to half their costs. Many of them have either laid off some staff, or sent them on unpaid leave. A few are paying employees a fraction of their salaries. The three restaurants that have moved out of Khan Market say they were forced by the combination of high rents and low revenues.
Sanjiv Mehra, president of the Khan Market Traders’ Association, says the nature of the restaurant business in India, which sees large groups of people — families or friends — going out to eat, makes it difficult to follow social distancing norms.
“Restaurants earn a profit when they run to full capacity. With social distancing norms, that is not possible. When you have to ensure 3-6 feet of separation, the number of covers also comes down. In any case, people in India go out to eat as groups. Because of Covid fears, the number of food deliveries has also been impacted negatively. Where there were 20 people working for food delivery apps at Khan Market earlier, you barely see 2-3 people now,” he said.
At Connaught Place, another of the capital’s big restaurant hubs, businesses that have negotiated rental deals recently have to pay much higher amounts as compared to those that have been at the market for several decades, and have low rental costs.
What are the concerns of the landlords and building owners?
Many property owners in Khan Market have renegotiated rentals for the duration for the lockdown and a few months beyond. However, liabilities and commitments mean that not everyone can make concessions.
Over the past three years, property owners have paid hefty amounts for the conversion of their properties into fully commercial units. In 2017, armed with an order from the Supreme Court and directions from the apex committee appointed by it, civic bodies carried out sealing in several markets, including in areas such as Defence Colony. Action was taken against those who had converted first- and second-floor residential properties into commercial establishments, but had allegedly not paid the required charges.
Khan Market was envisioned as a mix of residential and commercial spaces, where shops would be run from the ground floors and families would stay on the upper floors. It was allotted to refugees who were displaced from the North West Frontier Province during Partition.
Now, hardly any families live in Khan Market. The upper floors too are occupied by businesses, mostly restaurants. “Some people, especially those who got around to converting their properties from residential to commercial in the past few years, did so by taking loans. A 1,350 square foot property, for example, had to pay Rs 1.16 crore for the conversion. Many people took large loans, and if they waive rents, they will not be able to pay instalments,” Mehra said.
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