The Indian retail sector is on the brink of a significant transformation, driven by rising domestic consumption and favourable economic conditions. According to Cushman & Wakefield’s latest report - Resurgent Retail: Powered by Rising Retail Consumption, unveiled at MAPIC India 2024, India requires a substantial increase in premium retail spaces to meet the growing demand. The report estimates a need for ~ 55 million square feet (MSF) of Grade- A mall space over the next four years to keep pace with the market and align with other south Asian economies on the basis of Retail Space Per Capita (RSPC). *RSPC is Grade A mall space divided by the total population.
Shifting Consumer Landscape driving retail growth
The report highlights a significant shift in consumer spending patterns, with a growing emphasis on discretionary items and experiential retail. This trend is evident in recent data, showing an increase in urban India’s spending on discretionary items- from 27% in FY2011-12 to about one-third in FY2022-23, while spending on essentials has decreased. Additionally, monthly spending on food delivery and credit card usage have surged, reflecting higher consumer confidence and discretionary spending. Gradually, Indians are seen spending more on travel, vehicles and premium consumer durables, states the report.
International Brands Eyeing India’s Retail Growth
The report also highlights the increasing attractiveness of the Indian market for international retailers, many of whom are planning to enter the market. The report quotes AT Kearney’s Global Retail Development Index of 2023, which states that the “urgency for global retailers to enter and expand” in India is very high given the macroeconomic growth, income increase, favourable government initiatives, a strong digital payment ecosystem and improved infrastructure. According to the report, the average number of global brands entering India has surged from a pre-COVID yearly average of 12 to 25 as of 2024, signifying a growing confidence in the country’s retail potential. This influx of international brands is further driving the demand for premium retail spaces and contributing to the overall dynamism of the sector.
Urgent Need to Accelerate Quality Retail Development
The need of the hour is to upgrade the pace of quality retail developments, the delivery of which has been very slow so far. Over the last eight years, India’s retail sector has witnessed an average of a mere 2.5 MSF of Grade-A mall developments commence operations. This means, merely 20 MSF of Grade-A malls got added in the last 8 years, despite consumer demand consistently growing stronger during the same period. Notably, the first half of 2024 saw no new mall supply enter the market. India’s total Grade-A mall inventory, currently stands at 61 MSF across top 8 cities, translating to a mere 0.5 SF of RSPC, which is much lower even when compared with smaller countries such as Indonesia, the Philippines and Vietnam. This low mall penetration is the reason why vacancies in existing Grade-A malls are at its lowest level across top real estate markets.
Bridging the Gap: 55 million square feet of mall space needed
To reach a 1.0 RSPC by 2027, comparable to Indonesia- the closest relevant comparison owing to relatively similar per capital incomes, there is a need to construct approximately 55 million square feet of mall space over the next four years, highlights the report. At present, the forecasted pipeline of Grade-A retail mall projects add up to merely 18 MSF through 2024-27 period. It will be pertinent to note that India’s per-capita income is likely to equal that of Indonesia’s current income over the next 4-5 years. Thus, there is an opportunity for Indian mall developers to deliver this quantum in approx. 4-5 years i.e. 9 to 11 MSF per annum. That is nearly 3.5-4.5X of the capacity addition seen over the last eight years. This could vary across different cities, with some cities where the under-penetration is severe, wanting to add supply heavily.
High Streets & Office Retail Complexes (ORC) Witnessing Sustained Growth
The report also delves into the rising prominence of office-retail complexes (ORCs) and prominent high streets across Indian cities owing to the constraints w.r.t availability of space within the Grade A mall universe across top 8 cities. This has provided some relief by offering high visibility and proximity to customers, leading to peak rental premiums in these areas. The top 8 real estate market in the country has witnessed a strong emergence of Office-Retail Complexes over the last 7-8 years, until 1H-2024. Notably, more than 70 prominent ORC projects have been delivered during this period, and most of them have been successful in attracting quality retail tenants, it further asserts.
Prominent highstreets meanwhile across major cities have seen rental premium overshoot the pre-COVID peaks (mostly in year 2019).
Saurabh Shatdal, Managing Director, Capital Markets, and Head Retail, Cushman & Wakefield, said “India’s retail sector is at a pivotal moment. The rising consumer confidence and increasing discretionary spending are clear indicators of the sector’s potential. To capitalize on this growth, it is imperative to address the supply-side challenges and ensure the availability of quality retail spaces. The addition of 55 million square feet of Grade-A retail space will be crucial in meeting the demands of this dynamic market. This calls for a concerted effort from all industry stakeholders to chart a sustainable path forward, ensuring the Indian retail sector reaches its full potential”