Ashutosh Limaye, Head – Research and Real Estate Intelligence Services, Jones Lang LaSalle India, gives an overview of the Indian retail sector in 2011, describing it as a winning year for the retail real estate in the country.
2011 has been a winning year for retail real estate with respect to its growth in terms of demand and supply of new retail space across the cities. Retail space in India has seen an increase of about 14 million sq.ft., led by Delhi-NCR which has added 4.0 million sq.ft. followed by Mumbai which has seen a completion of about 3.5 million sq.ft. This happened after a widespread destress in the sector during 2009 and 2010. High absorption of close to 10 million sq.ft. of retail space was predicted for 2011, of which 7.1 million sq.ft. had already been absorbed till the third quarter of 2011.
Retailers in cities like Hyderabad, Chennai, and Bangalore continued to actively lease at high streets due to the unavailability of new upcoming operational malls and low vacancy in operational ones. Pan-India vacancy was recorded at 21.4 percent in the third quarter of 2011, falling 60 bps from 22.0 percent in the second quarter.
Several luxury international brands such as Zara, Vero Moda, Mango, etc. continued to expand their footprints in the suburban districts of tier I cities such as Mumbai and Delhi. For example, Zara opened two stores in Inifiniti mall, Malad and Market City, Kurla, during 2011, while KidZania, an international fun and entertainment brand, made its first entry into the country with its flagship store at R-City, Ghatkopar.
Besides, various brands from Future Group, Reliance, and Tata’s Trent also expanded significantly in 2011. Future Group launched a premium food chain called "Food Hall" which opened its first store in High Street Phoenix at Lower Parel, Prime South. Food Hall, that brought the finest food items of international and domestic categories under one roof, leased 13,000 sq.ft. in the mall.
Although a demand revival was seen in the country’s retail sector backed by strong absorption in past two-three quarters, retailers were keen on taking space in better managed malls in strategic locations, continuing the polarization of demand in several cities. Going forward, this polarization is expected to remain, resulting in structural vacancies which will raise the natural vacancy rate of the markets in the medium term.
Another 15-17 million sq.ft. of retail space is expected to get operational by the end of 2012. The major contributors are likely to be Delhi followed by Mumbai. Other cities such as Bangalore, Chennai, and Pune are likely to add increased retail spaces in the coming years. Opening up of 100 percent FDI in multi-brand retail remains a high possibility in 2012. However, due to the associated beliefs of negative effects to unorganized retail, the proposition will be tough to get accepted unanimously and we expect certain conditions being imposed for the same.
Persistent high inflation is a critical risk for the sector in the coming quarters, as government authorities continue to tighten monetary policies, which will hamper consumer spending and projected GDP growth.
Delhi and Mumbai are the major retail hubs of the country. Maximum organized retail has been developed in Delhi followed by Mumbai. In future, we feel tier I cities will continue to dominate the overall retail scenario of the country. However, the sector will see a long-term growth in tier II and III cities which have a lot of untapped opportunities and scope.
In 2011, a total of 146 malls opened in seven cities namely Mumbai, Delhi, Bangalore, Chennai, Pune, Hyderabad, and Kolkata. If 100 percent FDI in multi-brand retail is allowed, the sector might see a significant growth in supply of quality retail space. Besides, the sector is expecting to grow steadily with the increasing demographic and growing consumerism in the country.
