India’s retail real estate market gaining momentum
During 2016, the Indian retail real estate market witnessed the foray of international brands, the launch of few quality retail developments and robust demand for space across key retail markets. More than 19 new brands entered the country during the year, primarily through the NCR market. In total 180 prominent global brands entered/ expanded their footprint in India during the year. Add to that, the sector received more than US $0.7 billion of investment by PE firms/wealth funds. As per reports, private equity investments into the segment are expected to increase by as much as 20 percent in 2017, signalling that overall market dynamics for the segment continue to be positive.
While international retailers such as H&M, Zara, etc. are likely to dominate the fashion segment, the F&B segment, is likely to be a healthy mix of domestic and global operators across the QSR, café, brewery and casual dining formats.
Approximately 3.4 mn sq.ft. of new retail supply entered the market in 2016, with a majority of the supply (more than 40 percent) concentrated in Delhi NCR, followed by Bengaluru and Pune. The key developments completed during the year that contributed to this supply addition included Logix City Centre in Noida, Worldmark Phase I, II and III in Delhi, Pioneer Park in Gurugram, Brigade Orion East and Mfar mall in Bengaluru and Westend mall in Pune. During the year, global retailers expanded their portfolio with multiple store-openings led by international apparel and domestic F&B players who continued to dominate demand for organised retail space. New entrants in the market included Kiko Milano, Justice, Armani Exchange, Cath Kidston, Massimo Dutti, Hunkemoller and Longchamp. Existing retailers such as GAP, H&M, Marks & Spencers, Decathlon, etc. continued to expand their presence across the major cities of the country.
Rental trends varied across key high streets and malls in 2016. While some micro-markets witnessed stable rentals, other saw varying levels of rental increments. The upward movement of rentals in these select micromarkets was due to constrained availability of retail space, amidst a scenario of robust demand.
In 2017, we expect further positive movement for the segment. Close to 7 million sq. ft. of Grade A supply, is expected to enter the market, led by the Southern cities of Hyderabad and Bengaluru. With this, we are likely to see global and national brands execute their entry and expansion strategy in these cities, leading to a more uniform development of retail space across India. Even with this strong supply pipeline, the demand for organized retail space will continue to exceed the supply in most leading markets.
Demand for retail space during 2017 is expected to be dominated by fashion and F&B. While international retailers such as H&M, Zara, etc. are likely to dominate the fashion segment, the F&B segment, is likely to be a healthy mix of domestic and global operators across the QSR, café, brewery and casual dining formats. Besides these categories, Family Entertainment Centers (FECs) and multiplex operators are also going to be active in leasing space at existing and upcoming malls in 2017.
Rental values are expected to witness divergent trends in 2017 as well. For high streets, the completion of infrastructure initiatives will play a pivotal role in deciding the rental trajectory of markets. However, rental growth in most high streets across key cities is likely to be limited as they have already reached their peak.
For organized supply (malls), most prominent developments are likely to witness a steady rental growth in 2017, however the rate of growth is not likely to be uniform; with some malls having a higher bargaining power than others due to their brand mix, footfalls and catchment areas. Also, certain developments are likely to witness a rental decline due to factors such as age of development and a sub-optimum tenant mix.
With increasing urbanisation and policy initiatives we are witnessing a shift in consumption patterns towards a more mature nature. With the advent of REIT’s in the near future, the quality of malls is expected to improve and the concept of strata sale of properties is expected to reduce considerably. With GST due to be implemented by July 1, 2017, we will also see a rationalisation of tax at different level as well as improvement in ease of doing business and overall movement of retail goods. We also expect affordable luxury to garner more traction and in turn drive the luxury retail segment.