Resurgent Retail - Powered by Rising Domestic Consumption

Cushman & Wakefield

INDIAN RETAIL: READY FOR TAKE-OFF

The journey of the Indian economy from under 4 trillion currently to USD 5.0 trillion by 2027 is going to be an exciting one, particularly for the growth of consumption-driven sectors such as retail. India’s per-capita GDP is also expected to rise to USD 4,000 by 2030, placing the economy closer to that of other upper middle-income economies as defined by the World Bank. In this report, we highlight the significant transitions that the consumer spending will undergo driven by rise of the discretionary spend basket and experiential retail. Some glimpses of these shifts are already visible in the current retail landscape. Recent household survey by the government shows that urban India’s spending on discretionary items has increased from 27% in FY2011-12 to about one-third in FY2022-23, while spending on essentials has decreased. Additionally, consumer spending patterns are shifting towards experiences rather than essentials. Monthly spending on food deliveries and credit card usage have surged, reflecting higher consumer confidence and discretionary spending. Gradually, Indians are seen spending more on travel, vehicles and other premium consumer durables. International retailers find India’s retail market growth story highly attractive and many of them have plans to enter the market. In the recent past, the retail ecosystem has become more attractive to new entrants given the government initiatives on relaxation of FDI norms, a robust digital payment ecosystem and improved infrastructure and real estate. The need of the hour is to upgrade the pace of quality retail developments, which has been very slow so far. For the most recent eight-year period, we have witnessed an average of 2.5 MSF of Grade-A mall developments commence operations. India’s Grade-A retail mall inventory of 61 MSF across top-8 cities translates to a mere 0.5 SF of Retail Space Per Capita (RSPC), which is much lower even when compared with smaller countries such as Indonesia, the Philippines, and Vietnam. This low mall penetration is the reason why vacancies in existing Grade-A malls are at its lowest level, across top real estate markets. For the moment though, highstreets and Office-Retail Complexes (ORCs) are rising to the occasion and providing the desired space for retailers willing to expand their footprint. More than 70 ORCs have commenced operations in the last eight years, while prominent highstreets across major cities have seen rental premium overshoot the pre-COVID peaks. We foresee private equity interest in retail real estate to rebound, with more joint ventures likely between investors and developers in coming years.

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