Indian retail real estate poised for growth
India’s retail real estate market continues to gain positive momentum with over USD 0.7 billion of investment by PE firms/wealth funds entering the segment in 2016, across the National Capital Region, Mumbai, Ahmedabad and Pune. Further, in 2017, private equity investments are expected to increase by as much as 20%, indicating that the retail market in India is poised for significant growth over the next year.
In 2016, the Indian economy witnessed landmark decisions with the Government clearing the long pending legislations and introducing new, encompassing policies. Some of these initiatives, including easing of FDI norms, allowing for 100% automatic FDI in single brand retail and 100% FDI under the marketplace model have been the necessary catalyst for various international brands to consider India as a retail market of choice.
Demand for quality retail space during the year was led by international fashion brands and the domestic food and beverage segment. Various established players including H&M, Aeropostale, GAP, Forever 21, Hamleys, Taco Bell, La Senza, Zara,Vera Moda, Starbucks, Burger King, Flying Saucer Farzi Café and others expanded their portfolio with new store openings across key cities. It is noteworthy that over 19 new brands entered the country including Kiko Milano, Justice, Armani Exchange, and Cath Kidston.
During the year, rental trends varied across key high streets and malls. While 22 micro-markets witnessed stable rentals, 5 markets saw varying levels of rental increments and 3 markets saw a marginal dip in rentals. The upward movement of rentals in these select micro-markets was due to constrained availability of retail space, amidst a scenario of robust demand.
As we move into 2017, the retail real estate market will witness a healthy supply pipeline (close to 7 million sq.ft.) entering the market, led by Hyderabad and Bangalore. Major shopping center developments such as Pioneer Park Phase II at Gurgaon, L&T Seawoods Mall at Navi Mumbai, RMZ Galleria and SJR Spectrum mall at Bangalore, L&T Punjagutta and L&T Madhapur in Hyderabad, and The Palladium (Phoenix Mills) in Chennai are scheduled to become operational in 2017; leading to an increase in the supply of quality retail space in these markets. Despite this, we believe that the demand for organized space will outstrip supply. This development will push rents upwards across key markets.
While apparel and F&B will continue to be demand drivers, other segments gaining traction include, entertainment centers/themed-amusement parks. Delhi-NCR and Mumbai will continue to be the preferred points of entry in India for global retailers as both cities have the presence of the right target catchment and as well as suitable real estate opportunities. The Tier II markets are also likely to do well as these markets witness the addition of supply in 2017 thereby fuelling brand entries and expansions. With consumer confidence witnessing an upward movement combined with rising consumption patterns, active expansion of leading brands and the stable economic and political environment, the Private Equity Investor community continues to remain bullish about India’s retail real estate. All in all, 2017 is likely to allow for all-encompassing growth, as the metro cities lead the retail real estate activity in India, while the Tier I markets gear up for the next phase of retail growth.