Explosive Growth of Retail Real Estate in India

• @kw
• 02 Dec 2019

Increase in per Capita of middle class is changing consumer preference and choices. As a result the retail industry is advancing at an unprecedented pace in India.

The retail market is expected to double from present USD 790 billion by 2024. It is estimated that the organized retail constitute about 15% of the total retail space in India. Further Real estate sector in India is expected to reach a market size of US$ 1 trillion by 2030 from present US$ 790 billion and contribute 13 per cent of the country’s GDP by 2025. Retail, hospitality and commercial real estate are also growing significantly, providing the much-needed infrastructure for India\'s growing needs. Sectors such as IT and ITES, retail, consulting and e-commerce have registered high demand for office space in recent times. Commercial office stock in India is expected to cross 600 million square feet by 2018 end while office space leasing in the top eight cities is expected to cross 100 million square feet during 2018-20. Gross office absorption in top Indian cities has increased 26 per cent year-on-year to 36.4 million square feet between Jan-Sep 2018. Co-working space across top seven cities has increased sharply in 2018 (up to September), reaching 3.44 million square feet, compared to 1.11 million square feet for the same period in 2017.However, it is a recent trend that large number of small retail operators are preferring to open their shops in an organized market place alongside the organized big retail brands. The middle class consumer which estimated to be 300 to 400 million has also been shifting their preferences and now visits a mall to make their regular purchases for the daily needs. The massive population of middle class consumer is feeding into the demand for more retail space.

After allowing 100% FDI in single brand and 51% in multi-brand, retail has been attracting major global players. According to data released by Department of Industrial Policy and Promotion (DIPP), the construction development sector in India has received Foreign Direct Investment (FDI) equity inflows to the tune of US$ 25.04 billion in the period April 2000-March 2019. Institutional investors are also entering encouraged by the growth of retail space in numbers. The growth of retail space besides the change in per Capita Income of middle class can also be attributed to their exposure to the overseas market through electronic media publicity, digitization, urbanization and change in the lifestyle. As the growth prospects look promising in Indian Retail, private equity players from both India & abroad are binging big on the market. Since 2017, the momentum has been gaining in terms of investments in the Indian retail industry. Institutional players are scouting for both built-up projects as well as partnering with local players to develop new malls & other retail formats. This has also been helpful in boosting mall supply in the country, which is expected to reach 65 million Sq. Ft by the end of 2022. Chandigarh, Mumbai, Bengaluru, Pune & Hyderabad have been the frontrunners in attracting institutional money for mall development. Alongside large-scale malls, other formats of organized retail such as high street, discount stores & departmental stores will also grow at an accelerated pace. Tier 2 & 3 cities will also help towards managing growth as these places currently account for an expansive middle class population. Delhi NCR is becoming a promising location for mall in tier-2 and tier-3 categories.