Retail Sector Leasing Likely to Touch 5.5-6 mn sq. ft. in 2023, Highest Level after the 2019 Peak

Retail leasing is expected to touch 5.5-6 mn sq. ft. in 2023, the highest level after the 2019 peak of 6.8 mn. sq. ft., according to CBRE's latest report, titled ‘2023 India Market Outlook’. It is expected that primary leasing in newly completed malls will remain the key driver of retail space demand in 2023. The supply scenario is set to improve as not only a significant amount of pent-up supply lined up for completion during 2023 but several investment-grade projects launched by reputed players in the past 1.5-2 years are also expected to become operational in 2023. As per the report, it is estimated that supply would touch 6 mn. sq. ft. in 2023, the highest in the past five years.

The report further highlights that Indian consumers have remained optimistic about their personal finances, especially compared to other economies. This was reflected in CBRE India’s Live-Work-Shop consumer sentiments survey conducted in late 2022, wherein 77 percent of respondents revealed their confidence about their personal finances.

Anshuman Magazine, Chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE said, “We believe that any impact of an expected slowdown on economic activity will be circumvented by strong macroeconomic fundamentals and domestic consumption. The government’s strong capex programme, with a focus on infrastructure development and capacity building across sectors, is aimed at driving investment. As the second-largest employment generator in India, the real estate sector will continue to be a focus area for these investments. Meanwhile, India’s strong domestic consumption would continue to strengthen the retail sector, which would see a strong supply pipeline in 2023, driving leasing activity.”

Ram Chandnani, Managing Director, Advisory & Transactions Services, CBRE India stated, “Retailers must be prepared and consider strategic investments amid rapidly changing consumer behavior. While global headwinds could impact discretionary retail spending, cautious optimism among consumers along with diversified location and omnichannel sales strategies of retailers are likely to help the sector navigate the next normal.”

Five Top Trends Expected to Shape the Indian Retail Sector in 2023:

• The Store will Remain at the Heart of Business Operations: Examining the products, the support provided by a salesperson, real-time purchases, and a layer of experience offered by brick-and-mortar stores remain some of the top reasons for engaging customers in an in-store shopping experience. 
• Retailers will Continue to Carve Out Success in Diverse Locations: Most of the brands have an existing customer base that is willing to explore locations where retailers have used innovative concepts to draw a crowd. Currently, this trend is most prevalent among F&B retailers, but other categories are also likely to adopt this approach to expand their footprint and existing customer base. In a bid to diversify their location strategies further, several international brands in the F&B and apparel segments are also opening stores along expressways or highways.
• Leisure Spend may be Constrained: Compared to other economies, Indian consumers remained confident about their personal economic situation despite the current global outlook. Although household spending has held up so far, consumers are likely to keep a close eye on the inflationary pressures and their impact on the prices of commodities going forward.
• Retailers will Become More Active in Untapped Markets: Rising urban population, increase in per capita income, supply chain revamp after the pandemic, and successful brand launches in Tier II, III, and IV markets have led retailers and prominent developers alike to explore these emerging untapped markets. India’s transition into an organized retail market would be driven by the continued growth in these cities. It would, thus, become vital for retail stakeholders to harness the economic and development potential of these cities.
• Increased Awareness towards Sustainability: Developers are not only promoting sustainable initiatives (recycling, waste management, etc.) across their assets but also sustainable brands. In a bid to become more sustainable, many retailers are re-evaluating the sustainability credentials of their product/brand and directing their strategies towards investing in sustainable and responsible growth.

Things to Watch Out for in 2023

• The Social Media Flavor: The growing popularity of locally produced goods and smaller / independent brands can be traced to their social media presence, which has captivated young shoppers, especially late millennials. Most of these brands engage young audiences and broaden their reach through influencer marketing. The impact of their social media reach is such that these brands are now competing not only with big domestic names but also international ones.
• Omnichannel Retail Strategies to Evolve Due to the High Cost of Reverse Logistics: Online returns cause enormous stress on distribution networks, and reverse logistics cost for an average return can go up to 66 percent of the original sales price of the item. Over time, online shopping penetrated deeper into the Indian retail story, with most e-commerce channels and online platforms of notable brands adopting a free returns policy. Fast forward to today, since the cost of returning items is significant for retailers, many brands and e-commerce channels now have a reverse logistics fee, and/or they penalize customers for high return rates. However, the demand for online shopping will continue to grow and therefore retailers are likely to leverage store networks and adopt innovative omnichannel strategies to offset the high cost of reverse logistics.