Resurgent Retail - Powered by Rising Domestic Consumption

RESURGENT RETAIL

THE ROAD AHEAD The consumption pattern of India is anticipated to change faster going forward as the national income gradually comes closer to that of middle-income nations over the next few years. This makes India an attractive retail destination and there is an urgency among global retailers to enter the country and spread their presence. While this sounds positive for retail real estate landlords currently, the under-penetration of Grade-A malls in India today could be a restricting factor for global retailers. Requirement to build top-quality mall assets is high as nearly all major Indian cities experience weaker penetration – measured through retail space per capita (RSPC) – even when compared with South Asian countries such as Indonesia, the Philippines, or Vietnam. Mushrooming office-retail complexes (ORCs) and prominent highstreets across major Indian cities have meanwhile provided some relief as many retailers find these spaces attractive from a high visibility and customer proximity perspectives. Consequently, rental premiums have peaked across the most prominent high streets. If India were to reach 1.0 RSPC by 2027 (the level where Indonesia is currently given its income), mall developers would have to build approximately 55 MSF over the next 4 years. The speed of delivery required will be 3.5-4.5X higher than the speed with which Grade-A malls were getting delivered so far. These are conservative estimates, as these do not factor-in the risk of obsolescence. We estimate there is another 9-10% stock of Grade-A malls that would turn obsolete in the medium term. Adding quality assets at this scale and speed necessitates all stakeholders within the retail real estate fraternity including developers, investors, REITS among others to jointly deploy resources, the government must play an enabling role to facilitate ease of doing business.

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