Retail Real Estate Landscape-2013

India’s GDP was revised downward consistently in the last three quarters of 2012. In 2013, this trend will prevail – though the quantum of revision will be lower. The country’s economic environment will certainly improve in 2013, with a corresponding (though lagging) gain in momentum for real estate. The most tangible benefits of economic improvements on the Indian real estate space will be seen in the second half of 2013.

The average inflation rate, based on the Wholesale Price Index (WPI), was advised to 7.4 per cent in 3Q12. This can be seen as sensibly low when compared with the average consumer price index (CPI), which remained at 10.2 per cent. As a result of the slight moderation in WPI inflation, the Reserve Bank of India started softening its cash reserve ratio to improve the credit situation. Further easing of liquidity with the prime objective of reviving the GDP is expected in the first half of 2013. Base rates, which peaked in 3Q12, are likely to start falling in 4Q12 on the heels of monetary easing by the RBI.

Retail Real Estate Boom Signal

By 2013, the new organised retail project completions will increase significantly (by 109% y-o-y). Chennai, Hyderabad, Kolkata and Pune will be among the major contributors to this increase with a 53 per cent share of the country’s overall mall supply for 2013. The primary reason is that a sizable amount of supply, which was expected to reach completion in 2012, has been pushed to 2013. Altogether, India’s major cities like Mumbai, NCR-Delhi, Bangalore, Chennai, Pune, Hyderabad and Kolkata will see the addition of close to 9.5 million sq ft. of mall space in 2013. Mumbai, NCR-Delhi, Bangalore and Chennai will together contribute 70 per cent of the total retail space absorption. Other cities like Pune, Hyderabad and Kolkata will account for the remaining 30 per cent.

The Government’s nod to FDI in multi-brand retail will be a major driving force behind increased activity in 2013. Since the policy opens the portals to major MNC retail brands in India, the organised retail sector will see a major transformation in terms of its overall contribution in the midterm. This, in turn, will positively impact the absorption of retail space over the next 12–24 months. The absorption is forecast to touch 6.8 million sq ft. and 7.1 million sq ft. in 2013 and 2014, respectively.

Having said that, the benefits of the much-awaited FDI decision will not become fully evident in 2013 as it will take mall developers at least two years to incorporate the design elements and dimensions required to meet global standards. Mall developers are expecting a massive increase in demand for their projects in 2013; however, those whose shopping centres do not meet the requirements of international brands — in terms of location, overall size, design and professionally managed operations — will fail to attract much any action.

FDI Impact on Retail Real Estate

The much-debated policy on FDI in multi-brand retail sector was finally put in place in September 2012. The policy now permits FDI of up to 51 per cent into this sector, which is likely to boost the retail real estate market with the entry of international products, practices and technologies into India. Back-end retail infrastructure, such as logistics and warehousing (both of which are critical growth catalysts for the retail sector), will receive a significant boost from this policy as 50 per cent of the total FDI into the retail sector is directed at these segments.