India: Fastest Growing Retail Destinations in the World

For a market that is estimated to be one of the fastest growing retail destinations in the world, India has come a long way since 2011, when FDI in Retail opened up for the first time. In the past decade, the sector has progressed towards being regarded as one of the top 5 retail destinations in the world

India’s retail sector is going through a fresh period of growth which is backed by strong economic fundamentals. Retail supply in the next three years (2018 – 2020) is expected to be at 19.4 million square feet (msf). In the same period, demand will be approximately 15 msf. 2018 will see the highest supply since 2011.

The steady growth of supply will be accompanied by an equally stable growth in demand which is also expected to be at around 15 msf in the period of 2018 – 2020. Further, we expect a parallel rationalisation of existing mall spaces which will help the market avoid an oversupply situation.

The total newly completed malls in 2017 was recorded at 5.6 msf which is expected to see an increment of close to 40% y-o-y and rise to 7.8 msf by the end of 2018. The largest contribution to this will be coming from the two southern cities of Hyderabad (2.2 msf) and Chennai (1.5 msf) which will see a significant influx of mall supply. Delhi – NCR will be witnessing the highest supply of 2.3 msf of new mall space in 2018, albeit recording a decline of 28% y-o-y since 2017.

While retail mall space has now started to see a rise in the market, we did experience some rationalisation in supply last year with the withdrawal of nearly 5 msf of retail space as 28 malls shut-shop. Most of this stock consisted of poor grade malls in Delhi – NCR and Mumbai.

Delhi – NCR is expecting to see an addition of 2.3 msf of new mall space in 2018. Most of these malls will be in the peripheral regions and would be catering to the growing catchments of NOIDA, Gurgaon and Greater Gurgaon.

While Delhi – NCR already has the highest inventory, the growth of retail sector points out to the further possibilities of growth. In the same space, Mumbai which has in the past few years seen a slowdown in retail development activities will continue to witness remain cautious. 2018 will see a decline of 13% y-o-y in new mall completions, further maintaining the status quo in the market.

Chennai will experience a surge in new completion mall spaces with over 1.5 msf of new malls being added. Chennai has seen extremely restrained development activities over the last few years, mostly due to strong preference by retailers for traditional high street locations.

Hyderabad is the other major market to see significant growth adding 2.2 msf of new mall supply in 2018. This comes at the back that the city has not seen any new supply in the last year and has had a history of sporadic additions from time to time.

Encouraged by the urbanisation, young population and rising proportion of nuclear families in urban locations, over 70% of consumption growth in the next 15 years is expected from population aged 15-59 years, with increased per capita consumption.

By 2018, the Indian retail sector is likely to grow at a CAGR of 13 per cent to reach USD 950 billion and increasing participation from foreign and private players, it is likely to boost creation of retail infrastructure. Despite the onslaught of new retail formats like e-commerce, we will continue to see a steady growth in brick and mortar stores as well as malls and mixed-use developments that cater mainly to retail formats.