New trends in retail real estate leasing
In order to expand and achieve next level of growth, retailers are exploring to open stores in Tier 2 and 3 cities. Especially categories such as Ethnic Apparel, multiplexes, hypermarkets.BY Guest author | Feb 21, 2017 | comments ( 0 ) |
The remarkable growth of organized retail in the last decade is one of the significant transformations witnessed in India. As the retail sector is undergoing rapid evolution, so does the requirement for new products, services and superlative shopping malls. Accordingly, retail real estate developments have to keep pace with the changing consumer needs and demand of the tenants. They have to upgrade themselves regularly in terms of tenant mix, facilities and value added services. Mall Developers have also realized the importance of offering differentiated environment and value added services and therefore are innovating in order to attract footfalls. Shopping malls and retail spaces have now become holistic entertainment and social destination.
Therefore, a defining characteristic of this retail revolution is the emergence of new leasing trends in order to cater to the needs of the discerning consumers, entry of international retailers and also accommodate new retailing formats.
In last couple of years, growing number of leading global brands and marquee retailers are entering India. There is no doubt that the India is becoming an attractive destination for global retailers with further liberalization of the FDI policy and creation of business friendly environment.
As there is limited quality supply of shopping malls in India, these international brands prefer to lease in a Grade A high performing malls. The mall developers have also started to give preference to global brands and fast fashion retailers as ‘Anchors’ instead of the department stores. This has created competition for securing quality space for existing national retailers in the country also. Fast Fashion brands such as Zara and H&M are performing quite well in India and are preferred by consumers as they provide latest fashion and style. On the other hand it is to be noted that international brands also have to adapt themselves in terms of product offerings and price in order to connect with Indian consumers.
There has been frequent churns witnessed in the shopping malls today to usher in newer trends and retailing formats that are much in demand. Moreover, mall developers prefer the brands that can provide them higher revenue per square feet of space. Therefore the leasing process has become more systematic and structured in retail real estate space and there has been continuous monitoring of the store performance by the mall developers. As a result the contract period has also shortened in the lease documents of the shopping malls so as to accommodate frequent churn and newer brands entering India.
With changing market dynamics, there has been polarization of demand witnessed in the major metros. There has been lower vacancy in the quality malls and it has been become quite challenging to secure space in such retail real estate developments. The national retailers have therefore initiated newer formats and innovations in order to sustain and defy the competition in the market.
Also, due to rising popularity of e-tailing, both mall developers and retailers have to make extra effort to attract consumers to the physical stores and the shopping malls. As now transaction can take place anywhere and anytime, consumers need a reason to visit a physical store. The idea of shopping has changed from just offering a product to providing a world class experience enabled by cutting edge technology. The stores are designed to be smarter and more experiential through use of technology, innovation in services and introduction of digital interfaces. There has been adoption of multi-channel retailing by the brands in order to be relevant and competitive today. Retailers are trying to optimize the productivity of their stores by right sizing their stores and properly undertaking their network planning.
As is the case with other categories, multiplexes in India are also innovating themselves and offering superlative cinema viewing options to the audience. As multiplex are the main anchor for the shopping malls, the innovations in the multiplexes are benefitting the malls thus attracting greater footfalls.
In order to expand and achieve next level of growth, retailers are exploring to open stores in Tier 2 and 3 cities. Especially categories such as Ethnic Apparel, multiplexes, hypermarkets and affordable brands are venturing in smaller towns to gain competitive advantage and tap in the demand created from the consumers. Apart from shopping malls, there has been consistent demand of the space in the high streets as these offer constant flow of casual footfalls and visibility for the brand.
The retailers have also realized that each market in India is different from each other and therefore the demand and shopping preferences are also quite dynamics. Therefore, there is a requirement for customized leasing strategy for different micro markets and zones according to the requirement of the consumers present there. Careful planning and due diligence has become imperative for achieving long term success.
Another pertinent change in the retail space is the growing prominence of F&B sector in the shopping malls. Both number and proportion of F&B outlets are increasing in shopping malls and also now they are offered prime spaces as they attract footfalls. A well complemented F&B offer can add vitality and dynamism to the retail spaces and also has the ability to increase the dwell time of the prospective shoppers.
The strategies adopted by retailers in order to combat the increasing competition can be summarized as:
•Introduction of newer formats and concepts
•Emphasis on providing world class experience and use of technology
•Already established retailers are expanding their footprints in Tier 2 and 3 cities
•Customized leasing strategy for every market as per the needs and demand of the consumers
•To be present in prime and leading high streets of India so as to increase visibility and also capture the casual footfalls
•Adoption of multi-channel retailing to integrate physical and digital experiences
Physical retail spaces remain important for retailers and consumers alike and the role of stores is getting more enriched and experience based. Accordingly the leasing of retail space has undergone transformation in accordance with the market dynamics. Retailers have become more focused and opportunistic in their approach whereas the mall developers have also become agile and focusing on upgrading the quality of the retail space. It is a win-win situation for every stakeholder if careful planning and structured approach is adopted for securing the retail spaces.
The article has been pen down by Bappaditya Basu, National Director, Retail and Leisure Advisory and Shweta Kakkar, Head of Retail Intelligence Report, JLL, India.
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