Indian retail to see 10 million square feet added in 2019
India will see three times more new retail real estate this year than 2018.
India is expected to see more than 10 million square-feet of additional retail real estate in 2019 – three times that of 2018 – as the sector continues its booming growth across the country.
Investors have poured US$1.6 billion into retail real estate development across India in the past four years – a whopping 1094 percent increase from the four years previous.
“India’s stable regulatory regime, young cosmopolitan population with rising levels of disposable income, and eased retail policy have made it easier for operators to find new catchment areas and open new stores.” says Shubhranshu Pani, MD – Retail Services and Stressed Asset Management Group, JLL India.
Foreign investment norms have been relaxed, allowing foreign investors to own 100 percent of single-brand retail entities, where previously they could only invest up to 49 percent. This has boosted the attraction of the sector, says Pani.
The attraction of development
The expected boom in new retail space is being driven by investor demand for ‘development assets’, including properties under-construction, redevelopment opportunities, or new facilities built from scratch
Investing in development assets makes it easier for investors to overcome the initial challenges of India’s complex real estate approval process, says Pani. “With over 30 different kinds of approvals required to commence a project, it time and cost can often overrun.”
Getting the right mix
As physical retail across the world competes with a booming ecommerce market, developers are having to adapt their strategies to cater to the changing consumer landscape.
‘Consolidation in the retail sector is now prominent,” says Pani. “Successful malls are ones that have and will continue to adapt.”
Increasingly, malls are designed as leisure destinations, set to maximize the consumer’s experience with everything from sophisticated technology to a broad range of dining options and entertainment. Done right, it improves the customer experience, and ultimately footfall.
Among the retail segments faring best is F&B, which is currently valued at US$39.71 billion and expected to grow to US$ 894.98 billion by 2020 according to the India Brand Equity Foundation, a trust established by the Department of Commerce, Ministry of Commerce and Industry, Government of India. Mall developers are also courting restaurant operators as a strong F&B offering is critical to contend with expanding online competition
Investors stay bullish on India retail
Investors focused on retail real estate development in the country have been fuelling the segment’s growth with a regular flow of funds. And in the past four years (from 2015 to 2018), they have put in US$ 1.6 bn into the space, a figure that dwarfs the cumulative investments of US$ 134 mn made during the period between 2009 and 2014. And retailers thinking of expansion in the country are attracting them.
As a result, these investments have continued to help retailers launch and complete new projects. As per JLL estimates, new completion in the retail space is projected to see a three-fold jump to around 10 million sq ft by the end of 2019 from the levels witnessed in 2018.
“While regular funding has supported the retailers’ expansion, country’s stable regulatory regime, a large young cosmopolitan population that is eager to spend, their rising levels of disposable incomes and lowering of policy hurdles for retailers have made it easier for operators to find new catchment areas and open new stores. This is adding to the growth,” says Subhranshu Pani, MD – Retail Services and Stressed Asset Management Group, JLL India.
Foreign investment norms have been relaxed in single-brand retail in the country. A number of domestic and foreign retailers have opened new stores in the recent few years.
Investors prefer leasehold and development assets
Fully operational marquee retail assets that can directly be used for lease, especially those in tier 1 and 2 cities, have been on the radar of investors. In 2019, it is expected that investors will also be interested in ‘development assets’. These assets include the under-construction properties and the ones that can be the restructured or the greenfield malls.
“Investing into development assets makes it easier for investors to overcome the initial challenges of approvals that a real estate project goes through in the country. As a result, an exit becomes easier for investors,” adds Pani. With over 30 different kinds of approvals required to commence a project, it has been observed that there is often a time and cost overrun because of the approvals process.
However, there are a few categories which are doing well over others. According to JLL estimates, operators in the Food & beverages (F&B) segment, entertainment zone operators and fast fashion retailers continue to dominate on the expansion front, both in malls and in high streets.
These and other categories of retailers are now switching to omni-channelling of their products and services. Walmart’s investment into Flipkart and office space take up by giants such as Alibaba Group, Nearbuy and Amazon in Delhi NCR indicate that retailers are looking at Omni-channelling seriously.
“Consolidation in the retail sector is prominent now. Moreover, while mall operators are thinking of getting an attractive tenant mix retailers are experimenting with providing new experiences at their stores in addition to an online interface. Those in online space only are investing in bricks and mortar to tap into the already existing clientele,” adds Pani.
“The trend is here to stay and grow in the longer term,” he adds.