From ET Realty
BENGALURU | MUMBAI: The Indian retail sector still faces dearth of quality retail space and this could pose a big challenge to international retailers seeking an India entry, especially after the opening of foreign direct investment (FDI) in this space. While several malls across the country are reporting high vacancy levels, grade A retail space sought after by international brands is in shortage.
Last year, the government allowed FDI in single brand retail trading and duty free shops, and eased FDI norms for the e-commerce segment in an effort to attract more brands in the country as well as help existing brands expand.
“Retailers will have to revisit their real estate strategy and have a flexible approach, customised to different micro markets. Investment retailers will start experimenting with formats and sizes for the same brands, adapting to markets as they start moving up the value chain,” said Ashutosh Limaye, national director research, JLL India.
The vacancy level for total 72.5 million sqft mall retail space across the country is 19%, while for superior grade space of 30 million sqft, it is around 10%. However, after excluding the grade A retail space numbers, vacancy for the remaining space would be around 25%, said Limaye.
Developers, retailers, and consultants say the amount of retail space coming up is miniscule. “It is ironical that there’s vacancy across malls, but supply of quality retail space is in shortage. Apart from foreign retailers, even large domestic retailers are finding it difficult to find quality space at the right price to make their business plans work,” Anshuman Magazine, chairman, CBRE South Asia.
As per CBRE, given the rising popularity of online shopping, more and more retailers are adopting an omni-channel strategy by establishing online portals as well as strengthening their network of physical stores. According to industry experts, 2015 saw consolidation of retail real estate by brands and retailers who focused on their profit-making stores and closed down loss-making ones.
“Brands are looking at expanding in locations with good business growth. Urbanisation growth is superior in top 7 cities that account for most commercial absorption as that leads to creation of more new jobs and new consumption,” said Rajneesh Mahajan, executive director, Inorbit Malls (India) Pvt Ltd.
Given the demand pattern, the company is looking at expanding through brownfield and greenfield routes driven by financial viability. “We wish to double our portfolio in the next five years,” said Mahajan. The e-commerce boom has also led mall developers to re-imagine and enhance the ‘offline’ shopping and mall-going experience of customers.
“The brick-and-mortar format of retail real estate is all set to compete with today’s virtual shopping space as the former focuses on ‘experience’ and ‘entertainment’,” CBRE said in a report.
“We are trying to make our malls more experiential based on food and adding new categories. We are also trying to see if we can see last mile delivery tour tenants,” said Suresh Sunagaravelu, executive director retail, hospitality and new business Prestige Estates Projects, India’s second-largest real estate company by market capitalisation.
Rentals for Grade A shopping centers witnessed a marginal rise as compared to last year due to steady demand and limited new supply.
While challenges still exist, specifically for FDI in multi-brand retail, this year is expected to be a buoyant year for the retail real estate market.
With international anchor tenants willing to explore big-box formats in shopping centers as well as customized, smaller store formats on high streets, demand from global brands is expected to drive organized retail space absorption in 2016.