Around 55 mn sq ft of Grade-A mall space required by 2027 to meet growing retail demand: Report

India’s Retail Space Per Capita (RSPC) lags behind other South Asian Countries including Indonesia, Philippines, Thailand and Vietnam.

India requires around 55 million square feet of Grade A mall space over the next four years to keep pace with the market and align with other south Asian economies such as Indonesia, Philippines, Thailand and Vietnam on the basis of Retail Space Per Capita (RSPC), a report by Cushman & Wakefield has said.

Around 55 million square feet of Grade-A mall space is required by 2027 to meet growing retail demand (Picture for representational purposes only)(Reuters)

RSPC is Grade A mall space divided by the total population.

The report - Resurgent Retail: Powered by Rising Retail Consumption, unveiled at MAPIC India 2024 in Mumbai noted that the need of the hour is to upgrade the pace of quality retail developments, the delivery of which has been very slow so far.

Over the last eight years, India’s retail sector has witnessed an average of a mere 2.5 msf of Grade-A mall developments commence operations. This means, merely 20 msf of Grade-A malls got added in the last eight years, despite consumer demand consistently growing stronger during the same period.

The first half of 2024 saw no new mall supply enter the market. India’s total Grade-A mall inventory, currently stands at 61 msf across top 8 cities, translating to a mere 0.5 SF of RSPC, which is much lower even when compared with smaller countries such as Indonesia, the Philippines and Vietnam. This low mall penetration is the reason why vacancies in existing Grade-A malls are at its lowest level across top real estate markets.

To reach a 1.0 RSPC by 2027, comparable to Indonesia- the closest relevant comparison owing to relatively similar per capita incomes, there is a need to construct approximately 55 million square feet of mall space over the next four years, the report noted.

At present, the forecasted pipeline of Grade-A retail mall projects adds up to merely 18 msf through 2024-27 period. It will be pertinent to note that India’s per-capita income is likely to equal that of Indonesia’s current income over the next 4-5 years.

Thus, there is an opportunity for Indian mall developers to deliver this quantity in approximately 4-5 years i.e. 9 to 11 msf per annum. That is nearly 3.5-4.5X of the capacity addition seen over the last eight years. This could vary across different cities, with some cities where the under-penetration is severe, wanting to add supply heavily, the report showed.

International brands eyeing India’s retail growth

The report also highlights the increasing attractiveness of the Indian market for international retailers, many of whom are planning to enter the market.

According to the report, the average number of global brands entering India has surged from a pre-COVID yearly average of 12 to 25 as of 2024, signifying a growing confidence in the country’s retail potential. This influx of international brands is further driving the demand for premium retail spaces and contributing to the overall dynamism of the sector, it noted.

High Streets and Office Retail Complexes (ORC) witnessing sustained growth

The report notes that office-retail complexes (ORCs) and prominent high streets across Indian cities have risen to prominence owing to the constraints w.r.t availability of space within the Grade A mall universe across top 8 cities. This has provided some relief by offering high visibility and proximity to customers, leading to peak rental premiums in these areas.

The top eight real estate markets in the country have witnessed a strong emergence of office-retail complexes over the last 7-8 years, until 1H-2024. Notably, more than 70 prominent ORC projects have been delivered during this period, and most of them have been successful in attracting quality retail tenants, it notes.

Prominent highstreets meanwhile across major cities have seen rental premiums overshoot the pre-Covid peaks (mostly in the year 2019).

“India’s retail sector is at a pivotal moment. The rising consumer confidence and increasing discretionary spending are clear indicators of the sector’s potential. To capitalize on this growth, it is imperative to address the supply-side challenges and ensure the availability of quality retail spaces. The addition of 55 million square feet of Grade-A retail space will be crucial in meeting the demands of this dynamic market. This calls for a concerted effort from all industry stakeholders to chart a sustainable path forward, ensuring the Indian retail sector reaches its full potential,” said Saurabh Shatdal, Managing Director, Capital Markets, and Head Retail, Cushman & Wakefield.

Shift in consumer spending patterns

There is a significant shift in consumer spending patterns, with a growing emphasis on discretionary items and experiential retail. This trend is evident in recent data, showing an increase in urban India’s spending on discretionary items - from 27% in FY2011-12 to about one-third in FY2022-23, while spending on essentials has decreased.

Additionally, monthly spending on food delivery and credit card usage have surged, reflecting higher consumer confidence and discretionary spending. Gradually, Indians are seen spending more on travel, vehicles and premium consumer durables, states the report.