India’s retail sector is on the brink of a significant transformation driven by rising domestic consumption and favourable economic conditions.
According to a recent Cushman & Wakefield report titled Resurgent Retail: Powered by Rising Retail Consumption, India will require approximately 55 million square feet (MSF) of Grade-A mall space by 2027 to keep pace with demand and align with other South Asian economies in terms of Retail Space Per Capita (RSPC). However, the forecasted new supply of retail space between 2024 and 2027 is just 18 MSF or about one-third of the projected need.
Shifting Consumer Landscape
The report highlights a shift in Indian consumer spending toward discretionary items and experiential retail. Urban India’s spending on discretionary items increased from 27% in FY2011-12 to roughly one-third in FY2022-23, while spending on essentials has declined. There is also a noticeable rise in monthly food delivery spending and credit card usage, reflecting increased consumer confidence and discretionary spending. Indians are now allocating more of their budget toward travel, vehicles, and premium consumer durables.
International Brands Eyeing India’s Retail Growth
India is becoming increasingly attractive to international retailers. The Global Retail Development Index 2023 by AT Kearney emphasizes that the “urgency for global retailers to enter and expand” in India is very high, fueled by macroeconomic growth, income increases, favourable government initiatives, a strong digital payment ecosystem, and improved infrastructure. Post-COVID, the number of international brands entering India has surged from an average of 12 to 25 annually in 2024, signifying a growing confidence in India’s retail market potential. This influx is boosting the demand for premium retail spaces and energizing the retail sector.
The Need for Quality Retail Development
The pace of high-quality retail developments has lagged significantly. Over the last eight years, only 20 MSF of Grade-A malls have been added, despite strong demand growth. The first half of 2024 saw no new mall supply in India. India’s total Grade-A mall inventory currently stands at 61 MSF across the top 8 cities, with an RSPC of just 0.5 SF, far behind countries like Indonesia, the Philippines, and Vietnam.
Bridging the Gap
To achieve a 1.0 RSPC by 2027, comparable to Indonesia, approximately 55 MSF of new mall space is required over the next four years. This translates to a delivery rate of 9-11 MSF annually, nearly 3.5-4.5 times the pace seen in the last eight years. Vacancies in Grade-A malls have remained below 9% in recent years, and top-performing malls see vacancy rates under 4%, underscoring the current supply crunch.
Growth of High Streets & Office-Retail Complexes
The report also notes the growing importance of high streets and office-retail complexes (ORCs), driven by limited space in Grade-A malls. More than 70 ORC projects have been completed over the past 7-8 years, with many successfully attracting quality retail tenants. High streets in major cities have seen rental premiums exceed pre-COVID levels, largely due to high visibility and customer proximity.
Industry Perspectives and the Road Ahead
Saurabh Shatdal, Managing Director and Head of Retail at Cushman & Wakefield emphasizes that 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,” he stated. To harness this growth, addressing the supply-side challenges and ensuring the availability of quality retail spaces will be essential. Adding 55 MSF of Grade-A retail space by 2027 will require a concerted effort from industry stakeholders to ensure that India’s retail sector reaches its full potential.
In summary, India’s retail landscape is set for rapid expansion. Meeting global retail demand will require the construction of 55 MSF of Grade-A mall space by 2027, a delivery rate 3.5-4.5 times faster than the current pace. Collaboration among developers, investors, REITs, and government support will be crucial for navigating these challenges and driving sustainable growth in India’s retail sector.
