Indian retail growth to increasingly move beyond big cities

14 December 2017 4 min. read

As the consumer market continues to expand in India, brands are increasingly looking beyond the major cities and economic hubs, and gravitating towards smaller towns and suburbs. This is made possible through lower rentals in these regions, as well as new experimental leasing models that are emerging across the country, according to a new report. 

The Indian economy is expanding rapidly, and a telling sign of a vibrant economy is a booming retail sector. In India, the retail sector has most definitely seen a spike in activity in recent years, and is expected to continue to do so in the near future, although with a slight alteration of the targeted consumer base, as elucidated by a new report from JLL India and the Confederation of Indian Industry.

Recent analysis from the Boston Consulting Group revealed that the Indian consumer market is expected to reach a staggering value of Rs.4 trillion by 2025. It comes as no surprise, therefore, that the retail real estate, or mall industry, has been expanding at a similar pace, and will continue to do so in the future as well.

A study from a consulting firm earlier this year revealed that some of the largest cities in India, namely Delhi, Mumbai, Bangalore, Chennai, Hyderabad, Kolkata and Pune, are expected to see 34 new shopping malls come up by 2020. Now, retail consultancy JLL India has released a report, suggesting that the major retail traffic will be diverted from the major cities towards smaller towns.

All India Completions - Absorptions

The report, titled, ‘Fuelling the Retail Revolution: The Paradigm of Emerging Cities,’ explains that the retail sector has slowed down significantly, particularly in the number of new completions, with the number of square feet (sq ft) completed reducing by 300,000 last year. This year, the number seems to have picked up again, as the sector added 1.7 million sq ft so far.

In terms of net absorption, however, the performance seems to be declining, having fallen from 3.3 million sq ft last year to 2.7 million sq ft this year. However, in line with the booming consumer market, the future holds another major spike, both in the number of new completions as well as in the net absorption.

In 2018, the number of new completions is expected to amount to 11.2 million square feet, while the net absorption will spike to 6.5 million sq ft. However, this growth will be driven by sources outside of the tier I cities, evidence of which is already visible. As stated in the report, “In terms of overall mall performance as well as rental value appreciation across Tier I cities , suburban malls are fast catching up with their prime city counterpartsFuture Supply and Absorptions for Big CitiesIn absolute terms, the financial affluence of the big cities will keep them ahead of the relatively smaller commercial hubs. Big cities like Delhi, Mumbai, Bengaluru and Hyderabad,  for instance, are expected to see strong supply in the years until 2021, with expected completions of 6.9, 3.6, 2.8, and 7.1 million sq ft respectively.

In terms of net absorption, Delhi will see complete absorption of the upcoming supply, at 6.9 million sq ft. Mumbai will see net absorption of 3 million sq ft. Meanwhile, Bengaluru and Hyderabad will see net absorption of 2.5 and 5.2 million sq ft respectively.Current Stock and Future Supply for Smaller CitiesThe smaller cities, on the other hand, are set to perform better than they have done previously. Cities like Jaipur, Chandigarh and Lucknow, for example, which have reasonably high existing stocks of 4.5, 4.1, and 2.6 million sq ft respectively, are expected to do well in the near future. By 2021, the supply for these cities is expected to increase by 1.9 million sq ft for Lucknow, 450,000 for Jaipur, and 350,000 for Chandigarh.

As expressed by Ramesh Nair, the CEO and Head of JLL in India, “With increased land prices and high lease rentals in big cities, retailers too are seeking options beyond the metros. Popular brands are looking at Tier II cities for expansion. Due to rising urban population, increasing per capita income and the success of brand expansions in Tier II cities, this transformation will continue to be seen in the coming years.”