Changing Landscape of Indian Retail

The Indian retail sector is expected to strengthen in the coming years, with the rise in population, per capita income and urbanisation.
Changing Landscape of Indian Retail

India’s retail sector has undergone a rapid transformation over the past decade and this process is expected to strengthen in coming years with the rise in population, per capita income and urbanisation. According to the provisional estimate by the Census of India 2011, the country’s total population has reached nearly 1.21 billion compared to the 1.03 billion recorded in the previous census of 2001. This tremendous growth in population has led to an unprecedented scale of urbanisation, with the share of urban population increasing to 31.0 per cent in 2011 from 28.0 per cent in 2001. According to the United Nations, India has the highest rate of change in its urban population of all the BRIC nations and this figure is likely to remain above 2.0 per cent annually for the next three decades. Nearly 64 per cent of the Indian population is in the working age group of 15-64 

and 35.0 per cent is relatively young, aged 15-34. As per IMF estimates, the per capita GDP of the country was Rs 46,221 per annum at end-2011, a figure that is forecast to rise to Rs 58,224 by end 2015. With India’s growing per capita income and a rising middle class, the retail sector has the potential to be the real growth engine of the country’s economy. While demand for a superior shopping experience is evident in the metropolitan cities, the Tier II and Tier III towns are also rapidly acclimatising to the changing landscape of the Indian retail market. Growing consumerism, changes in consumers’ tastes and preferences, and heightened brand consciousness has been fast replacing traditional mom and pop stores with organised retail malls that house lifestyle and luxury brands from national and international retailers.
As part of its retail transformation, India has seen substantial increase in mall space in recent years. Over the past decade, such cities as NCR-Delhi, Mumbai and Bangalore have shown prominent growth in retail stock, while Hyderabad, Pune, Chennai, Kolkata and many other Tier III towns are rapidly emerging as the retail growth corridors of the next decade.
FDI in Multi-Brand Retail: Key to Speed up Retail Transformation
In an important policy move, the Indian government gave permission for up to 51 per cent FDI in multi-brand retail in September 2012. The objective of this policy is to boost the retail business through adoption of international standards and practices. The entry of international products, practices and technology is expected to enhance the efficiency of domestic retailers. The government has made it mandatory for foreign multi-brand retailers to place at least 50 per cent of their total investment in back-end infrastructure, thus giving a boost to facilities such as logistics and warehousing.
Delhi NCR
Delhi is India’s political and administrative capital, and is also the country’s second-largest metropolitan city. With a mixed population of the traditional wealthy and the middle class combined with the upwardly mobile employed across various industries, there are healthy residential catchment areas for luxury as well as specialty and mass retailing formats. With healthy population levels across the Prime City sub-markets and well-settled areas in the surrounding locations, organised retail formats have flourished over the past decade. Suburban cities look set to see a larger share of future retail developments as they become home to an increasingly large population that will fuel demand for these formats across multiple locations in the suburbs.
With vacancy rates in performing malls in single digits and retailers favouring expansion in projects offering optimal value, leasing activity was sluggish across the Delhi-NCR retail market in 2Q12. Retailers are also pre-committing to space in upcoming retail projects that offer a good location, design, branding and business potential. Demand originated primarily from clothing and accessories brands, food and beverage retailers, and electronic equipment vendors. Absorption volumes saw a 69.0 per cent drop from the previous quarter, with net take-up at 170,985 sq ft, of which two-thirds was in select existing projects in the Suburbs sub-market. 
Overall, vacancy rates dropped to 24.7 per cent, a 60 bps drop q-o-q. With existing stock in the Prime South sub-market constrained by low vacancy rates, notable leases included those by Roberto Cavalli and Van Laack, which leased 3,000 sq ft and 1,500 sq ft respectively, in Emporio; Dunkin’ Donuts, which opened its first store in India, leasing 1,000 sq ft in DLF Courtyard in Saket; and Mamagoto, a Japanese restaurant, which leased 3,000 sq ft in DLF Promenade in Vasant Kunj. Leases in the Prime Others sub-market included Haldiram’s take-up of 6,000 sq ft in Pacific Mall, Subhash Nagar, as well as numerous other leases. Notable leases in the Suburbs sub-market were Reliance Digital’s lease of 25,000 sq ft in Raheja Mall, Lemp Brew & Kitchen’s lease of 10,292 sq ft in DLF Star Mall and Fabindia’s lease of 8,500 sq ft in MGF Plaza, all in the Gurgaon precinct. 
New supply was limited to one completion in the Prime Others submarket, with the retail component on the Delhi Metro Airport ExpressShivaji Stadium transit point (60,310 sq ft) becoming operational at 35-40  per cent occupancy.  
Quarterly absorption is sluggish in 2Q12
Polarised demand sees retailers favouring select retail projects
Rents are stagnant across all submarkets


Asset Performance

Overall, rents remained stagnant as retailers resisted increases and large retailers enjoyed having an upper hand in commercial negotiations. Capital values showed a slight increase in the Prime South sub-market but remained stagnant in other sub-markets. Overall, capital values showed a q-o-q increase of less than 1 per cent, while yields compressed by 10 bps for the first time in nine quarters. 
Rental Value: Rs 242 psf pm
Stage in Cycle: Growth slowing
No. of Quarters Since Last Trough: 4
12 Months outlook
On-going government discussions about FDI in multi-brand retailing may lead to some positive developments that are expected to spur the entry of large-format global retailers. Malls that are forecast to become operational will see leasing activity based selectively on location and demographic profile. The Prime South sub-market will continue to see interest from retailers and an active churn in existing stock may push rents up. Select upcoming developments in the Prime Others and Suburbs sub-markets are expected to generate healthy demand based on current pre-commitment levels. Supply rationalisation may result in an easing of the downward pressure on rents, although rental growth is forecast to remain range-bound. 
Mumbai is India’s largest metropolitan city and world’s fifth most populous city. It is also the commercial and financial capital of India. Growing highand middle-income demographics, along with a larger working population, has enabled organised retail to grow rapidly in the city. Indeed, Mumbai was home to the country’s first organised mall, Crossroad (at Mumbai Central), which opened in 1998; today, more than 50 malls are operational in the city. Mumbai also has well established high street locations, along with many of the country’s most successful malls. In recent years, many international luxury brands have chosen the city as the perfect place for business because of its large population and strong purchasing power


Retail demand in 2Q12 was weighted towards certain quality malls and overall take-up slowed as retailers were careful about expansion plans. The city recorded total net absorption of 152,836 sq ft in 2Q12, a significant drop compared to the 488,016 sq ft recorded in 1Q12. Demand from retailers was concentrated in malls in the Suburbs sub-market because of their better infrastructure and vast residential catchment areas. Lack of new retail space in the Prime South submarket continued to cause strong demand in existing mall space in this area, given its high-end demographics and office catchment areas. 

Dominated by high street space and standalone retail formats, demand for mall space in the Prime North sub-market remained under pressure in 2Q12 and the vacancy rate in the area held steady at the levels seen in 1Q12. Lack of quality mall space in the city continued to contribute to the polarisation of retailer demand between good and poor malls.
No new completions were recorded in 2Q12 and the city’s total retail stock remained at 1Q12 levels of 17.9 million sq ft, with average vacancy rate dropping to 22.1 per cent. 

Net take-up slows in 2Q12 due to cautious expansion by retailers
Overall vacancy rates decline
Rents and capital values increase in selected submarkets
Asset Performance
Rents increased in the Prime South and Suburbs sub-markets in 2Q12. The Prime South sub-market saw a rise of 0.8 per cent q-o-q, mainly due to limited options available to retailers. A gradual increase in the occupancy rates of select quality malls in the Suburbs sub-market boosted average rents by 2.0 per cent q-o-q in 2Q12. The lack of demand for poorly designed malls in the Prime North sub-market caused rents and capital values to stabilise during the quarter. Capital values increased marginally by 1.3 per cent and 2.2 per centq-o-q, respectively, in the Prime South and Suburbs sub-markets. Investment sentiment was sluggish in the quarter due to a slowdown in domestic growth an uncertain global economic situation.

Rental Value: Rs 240 psf pm
Stage in Cycle: Rents rising
No. of Quarters Since Last Trough: 5
12-Month Outlook
Absorption is expected to strengthen over the remainder of 2012, with a forecast increase in take-up in existing malls and the completion of a few major malls in the Suburbs sub-market. The polarisation of demand is likely to continue as it concentrates in strategically located and well-designed malls with good management. Vacancy rates are expected to decline gradually as supply dries up over the coming years and developers increasingly shift their preference to standalone and 
mixed-use development retail formats as alternative retail locales. Expected policy decisions that will determine whether FDI in multi-brand retail entities will be permitted are predicted to boost the retail industry by creating a business-friendly environment for both developers and retailers. Brand awareness among modern consumers is growing at an increased rate, encouraging more international retailers to enter the city’s retail market. Rents and capital values are likely to increase 
steadily in all sub-markets, albeit by different degrees.
Over the past decade, Bangalore has experienced rapid growth and international recognition in the field of IT and software development. The city’s demographic profile has changed significantly due to the large migration of people into Bangalore following the IT boom in various parts of the country, cutting across different income groups and cultural backgrounds. This has added to the multicultural flavour of Bangalore, and been one of the main drivers of the latest trends and lifestyles in this cosmopolitan city. The city also attracts people from all over the world due to its excellent schools and universities, among them the Indian Institute of Science, the Indian Space Research Organisation, the Indian Institute of Management and the Indian Institute of Aerophysics.
Bangalore witnessed absorption of 121,000 sq ft in 2Q12 against 878,097 sq ft in 1Q12, with overall vacancy rates decreasing from 9.1 per cent in 1Q12 to 7.6 per cent in 2Q12. However, leasing of space in high streets remained strong in the quarter as international and national retail brands expanded their footprints, mostly in Indira Nagar, Koramangala and HSR Layout in the Secondary sub-market. The brands that leased space in Bangalore in 2Q12 included Hush Puppies, Pavers England, Reliance Trends, Peter England People, Max Retail, Nike, Domino’s Pizza, Samsung, Black, Sylcon Shoes and Reliance Digital. Max Retail expanded in two high street locations – Basaweswarnagar and Malleswaram – leasing 10,800 sq ft and 7,500 sq ft, respectively. Other major leases included Reliance Trends with18,000 sq ft in Kattriguppe and Reliance Digital with 9,000 sq ft in HSR Layout. 
The market saw no completions in 2Q12. The Orion Mall at Rajaji Nagar in the Secondary sub-market was the only mall to commence operations in 1H12. The total stock of retail space in Bangalore in 2Q12 stood at 7.6 million sq ft, with about 29 malls operational in the city, most of them in the Secondary sub-market.

Absorption decreases significantly in 2Q12
Rents are stable across all submarkets
Capital values increase in the Prime submarket
Asset performance
Rents in malls in the Prime sub-market have remained stable over the past eight quarters. A considerable supply of malls in the pipeline is offering retailers many options and developers are, therefore, unable to increase rents in the Secondary sub-market in order to attract retailers.
Capital values remained unchanged in both the Secondary and Suburbs sub-markets in 2Q12, while the Prime sub-markets saw a nominal increase in values, mainly due to the increase in land values in the city as a whole. Yields remained mostly stable in the quarter, with a decrease of 10 bps seen only in the Prime sub-market. 

Rental Value: Rs 178 psf pm
Stage in Cycle: Decline slowing
No. of Quarters Since Last Peak: 14 
12-Month outlook
The retail market saw a slowdown in investment plans by major retailers in 2Q12 as top retailers occupying organised retail space are expanding only slowly and cautiously; this will have an impact on absorption for 2012 as a whole. The city is also expected to see supply of about 1.6 million sq ft over the next 12 months.Rents are likely to remain stable or appreciate marginally in 2H12 given a considerable supply in the pipeline and an expected slowdown in demand among retailers. Capital values are forecast to rise due to the increase in construction costs and land values. 
Known for its popular high streets, Chennai is considered the home of many traditional retail formats. Although high 
streets continue to attract retailers, the increased globalisation and cross-cultural migration from within India has caused the consumption pattern of the city’s working class to undergo a significant metamorphosis. With improved business opportunities, Chennai’s retail landscape has also witnessed rapid changes, including the entry of major foreign and domestic retailers and mall developers. Indeed, a number of malls are expected to become operational over the next two years, dispersed across various locations in the city. Retail activity is currently concentrated in the CBD and SBD of Chennai, while such suburban locations as OMR and GST are seeing flourishing residential and commercial development that will trigger retail activity in the future.
Vacancy rates dropped from 13.5 per cent in 1Q12 to 11.2 per cent in 2Q12, with absorption in the quarter at 63,000 sq ft. Retailers remained cautious about leasing mall space as the lack of options in existing malls is encouraging them to wait for upcoming malls. Absorption in the quarter was restricted to a couple of malls, with Spectrum Mall leasing some 58,000 sq ft of space to Sathyam Cinemas and Ramee Mall leasing 5,000 sq ft to Q Play, a gaming zone. High streets of Chennai remained the preferred destination for retailers, with home appliances, electronics, textiles and lifestyle brands, as well as computer showrooms, opening shops in different high street locations. The city’s retail market has always been driven significantly by the jewellery business. Prevailing inflation and a volatile economic situation has reinforced demand for such safe-haven commodities as gold and silver. Indeed, in 2Q12, Gitanjali Jewels and VBJ opened showrooms on TTK Road and Anna Nagar respectively. Meanwhile, the growing young migrant population in the city has boosted demand for fast food and take-away outlets like Café Coffee Day, Sri Krishna Sweets, Grand Sweets and Thalapakkatti, expanding in 2Q12


No new supply was added in 2Q12, although a significant 2 million sq ft is expected to come on stream in 2H12. Prestige’s Forum Mall in Vadapalani, Market City & PS Grand Mall in Velachery, and Ten’s Square Mall in Koyembedu are expected to enter the market in 2H12.

Vacancy rates decline in the suburbs
Retailers continue to wait for quality mall space as no new supply enters the market in 2Q12
Financial indicators rise marginally after remaining 
stable for over a year
Asset performance 
Higher quoted rents and pre-commitments at higher rates pushed rents up during the quarter with average figures rising from Rs 87 per sq ft per month in 1Q12 to Rs 88 per sq ft per month in 2Q12. Capital values rose by 0.9 v to Rs 8,175 in the quarter due to anticipation of higher rents in upcoming projects.

Rental Value: Rs 135 psf pm
Stage in Cycle: Growing slowing

No. of Quarters Since Last Peak: 9 

12 Month outlook 
With more than 2 million sq ft of mall space in advanced stages of construction and around 65% of space already pre-committed, vacancy rates are expected to rise in the short term. However, we predict that rates will decline over the medium term as retailers who are waiting for a good location to set up shop will likely take up space in the new malls in prime locations. A significant amount of mall space that is coming up in the short term will influence average rents and capital values in the city, with higher quoted rents in new malls continuing to drive rental and capital value growth. However, 
this growth will be restricted to projects in prime locations as rents in peripheral areas will remain stable



Located in western India, Pune is the country’s eighthlargest city and has a population of 5.8 million. Pune’s economy is driven by sectors such as automobiles & auto components, IT/ITeS, biotechnology and agro & food processing. Today, the city is also known for its educational facilities.It is home to more than 200 educational institutes and nine universities. The resulting opportunities attract working people and students from all over India and overseas, making Pune a city of many communities and cultures. Growing young and high-income demographics have spurred the growth of organised retail in Pune, with more than 16 malls now operating in the city. A growing number of investment-grade malls have introduced a new retail culture to Pune and its retail landscape has undergone a significant transformation, with the completion of seven malls over the past two years.


Pune currently lacks readily available quality mall space in both Prime City and Secondary sub-markets, which is the primary reason for the recent fall in demand from retailers. Following the completion of five malls over the past 18 months, Pune’s retail market saw no new completions in 2Q12, although Seasons Mall is likely to become operational in 3Q12. Transaction activity was subdued in 2Q12, with net absorption amounting to just 17,411 sq ft. Overall vacancy rate decreased marginally from 17.9 per centat the end of 1Q12 to 17.5 per cent in 2Q12. Vacancy rates in Prime City remained unchanged whereas those in the Secondary sub-market decreased from 19.3 per cent to 18.9 per cent in 2Q12. With most prime malls in the city, such as Magnum Mall on Moledina Road and Jewel Square in Koregaon Park, running at more than 90 per cent occupancy, Plaza Centre commenced operations in 1Q12 with an 83 per cent occupancy rate. The Secondary sub-market saw heightened activity in 2011 with the opening of Pulse Mall, K Raheja Corp’s Inorbit Mall, Phoenix Market City, Reliance Mall and Amanora Market City. Pune’s retail market is likely to follow the same trend over the remainder of 2012 as Seasons Mall in Hadapsar and Prime Mall in Chinchwad are expected to enter the market over the next two quarters.


With no new completions recorded in 2Q12, Pune’s organised retail stock remained unchanged at 5.1 million sq ft. Seasons Mall, offering approximately 0.65 million sq ft, is currently under construction and likely to be operational by 3Q12. Approximately 2.5 million sq ft of new supply is forecasted to become operational from 2012-14, with major projects including Kohinoor Mall and Seasons Mall in the Secondary sub-market, and ICC Mall in the Prime City sub-market.
With no new completions recorded, Pune’s organised retail stock remains unchanged in 2Q12
Occupancy rates in malls improve marginally on the back of fewer transactions in the quarter
Rents and capital values remain stable at 1Q12 levels
Asset performance 
With no new completions recorded in 2Q12 and low vacancy rates prevailing in existing quality malls, rents remained stable at the previous quarter levels. At end-2Q12, rents in malls in the Prime City sub-market were stable at an average of Rs 118 per sq ft per month. High rents in the sub-market can be attributed to almost 100 per cent occupancy rate seen in both major malls (Magnum Mall and Jewel Square). In addition, transactions recorded in Plaza Centre were relatively on the higher side. Rents in the Secondary sub-market are driven primarily by the recently completed Market City, Inorbit and Pulse Mall, as well as Amanora Town Centre Mall in eastern Pune. Most of the transactions in these malls are being signed for Rs 70-120 per sq ft per month (for the smaller spaces). Rents in the Secondary sub-market remained stable at an average of Rs 72 per sq ft per month in 2Q12.

Rental Value: Rs 118 psf pm
Stage in Cycle: Rents rising
No. of Quarters Since Last Trough: 13 
12 Month outlook 
Some 2.5 million sq ft of organised retail space is expected to become operational over the next 18-24 months; resulting in a potential for over-supply in this sector over the coming year. This may increase vacancy rates and put downward pressure on rents. Significantly low vacancy rates in existing quality- malls (Magnum Mall, Kumar Pacific and Jewel Square) and limited new developments are driving rents up in the Prime City sub-market.



With a population of about seven million, Hyderabad has a mix of both traditional and contemporary retail destinations. The older parts of the city are home to local retail outlets along major transport corridors and nodes that have evolved into prime traditional high street retail space. These retail destinations are also tourist attractions given that they are the trading centers for pearls and other semi-precious gems, along with stores that sell traditional arts such as zardosi and bidri. The new city has witnessed growth in the organised retail sector that extends up to IT hubs including Begumpet, Banjara Hills and Jubilee Hills and; on to Hi-Tech City, Madhapur and Kondapur. These locations now have the presence of international, national and local brands. They are also seeing significant mall developments, as the city enjoys strong retail potential in line with the growth in employment opportunities and income.

Demand remained healthy in 2Q12 as retailers expanded in prime high street locations, with most of the leasing focussed in Banjara Hills and Jubilee Hills. The Manjeera Mall continued to see leasing activity during the quarter. Mom & Me, Arvind Store, Reliance Retail, Canon, More and others leased space in the city in 2Q12. There was no net absorption in the quarter and the vacancy rate remained at 2.1 per cent. Pre-leasing continued in malls under construction, although most existing malls saw little or no major leasing activity.
Hyderabad saw no new mall space in 2Q12.

High streets continue to see good leasing activity, 
especially in the Prime Suburbs sub-market
Pre-leasing in malls under construction continues at a modest pace
Rents and capital values remain flat in malls while 
rents for high street space increase
Asset Performance
Rents and capital values remained stable in 2Q12. However, improved demand and the scarcity of mall space boosted demand for high street space, which in turn led to a rise in rents.

Rental Value: Rs 127 psf pm
Stage in Cycle: Growth slowing
No. of Quarters Since Last Trough: 6
12 Month outlook
Improving hiring activity in the city is expected to boost consumer confidence, driving demand for retail space. Local and national retailers are predicted to expand strongly in the city, especially in high street locations. A few good-quality malls in the city, such as Manjeera Majestic, Manjeera Trinity and Prestige Forum Crystal, are under construction and enjoy good leasing activity. Rents are forecasted to rise marginally given the scarcity of mall space in the city.
India’s third most populous city - the business, financial and trading hub of eastern India - Kolkata has witnessed a surge in investment and a rapid growth in the IT/ITeS sector in recent years. The city is made attractive by its depth of talent pool and relatively low operating costs. Today, Kolkata has made its way on to the radar of international premium brands due to its growing high-income population and optimistic business sentiment. As the retail landscape of the city undergoes a sea change, this City of Joy is gearing up to put its best foot forward.
Due to a scarcity of available retail stock in the Prime City and Prime Others sub-markets, the Suburban sub-market continued to attract active interest from retailers. Net absorption in 2Q12 was 5,274 sq ft, an increase over the previous quarter and indicative of improving sentiment. The overall vacancy rate in 2Q12 was 10.9 per cent, a q-o-q decrease of 10 bps. Vacancy rates in the Prime City and Prime Others sub-markets stood at 2.4 per cent and 8.5 per cent, respectively, in 2Q12. The vacancy rate in the Suburban sub-market witnessed a q-o-q decrease of 10 bps to 12.9 per cent in the quarter.

Absorption levels in 2Q12 increase over 1Q12 levels due to improving market sentiment
There are no new completions in the quarter
Rents and capital values register q-o-q increases in the range of 1-2% across all sub-markets
There were no new completions in the quarter and total retail stock in the city was about 4.4 sq ft as at the end of 2Q12, with an overall vacancy rate of 10.9 per cent. The Suburban sub-market is home to around 64% of the total retail stock in the city.
Asset performance
Overall, rents rose by a marginal INR 1 per sq ft per month, signalling that the market is moving towards growth. Rents in the Prime City sub-market have risen since 1Q12 as a result of limited new supply and low vacancy rates in operational malls. The q-o-q rate of increase in 2Q12 was 1.6 per cent. Capital values in the Prime City sub-market also witnessed a 1.6 per cent jump q-o-q to settle at INR 16,000 per sq ft. Subsequently, market yields remained at 10.4 per cent due to the proportionate increase in rents and capital values. Rents in the Prime Others and Suburban sub-markets have also seen a q-o-q increase in the range of 1-2 per cent since 1Q12.

Rental Value: Rs 188 psf pm
Stage in Cycle: Rents rising
No. of Quarters Since Last Trough: 8
12 Month outlook
After making its way on to the radar of premium international brands, Kolkata continues to attract active retailer interest. Enquiries are expected to remain robust over the next 12 months as retailers, both anchor and vanilla, continue to chase deals in projects under construction by reputed developers, which may provide a stimulus for superior branding. Transactions are likely to follow the trend towards revenue-sharing rather than straightforward leasing deals. Rents are expected to be stable in the short term if all projects under construction are completed as expected.


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