Q1 14 India Retail Report

In the latest report from global consultancy Cushman & Wakefield, the total fresh mall supply by the end of 2014 is projected to be approximately 14 million square feet (msf) approx. in the top eight cities of India[1] , of which 13.6 msf is still under construction. This is nearly 200% more than the supply received in 2013 which was recorded at almost 4.6 msf. Of the total expected mall supply for the year of 2014 approximately 60% or 8.2 msf of fresh mall supply is expected to be received by National Capital Region (NCR) followed by Bengaluru at 2.86 msf.

Sanjay Dutt, Executive Managing Director- South Asia Cushman & Wakefield India said, “There has been a state of marginal slowdown in development activities across the main cities. Developers are cautions in entering into new locations thus no new project is created or even announced before a thorough study of the potential of the location. With the Retail FDI in place, developers are expecting demand from foreign brands to start pointing northwards, which puts added pressure for them to create conducive shopping environment.”

Sanjay further added, “Even while demand for retail space has been good, there is an obvious concern of creating the right product and having the right tenant mix. The developers are keen to explore mixed use developments where shopping centre or limited organized retail and or hotel could be one of the other components in addition to residential development, which ensures cash flow, addresses long term value enhancement and better returns.  Retailers are also facing challenges overall in terms of sales and require a lot of attention to detail to achieve sales. Right merchandise at right locations, centres with right promotions and rapidly changing market conditions is key to the success.  Lot of attention is also being given to e-retailing. Once the stability of a new government is in place, activities are expected to pick up pace.”

Q1 2014 witnessed deferment of 4 malls amounting up to nearly 1.26 million square feet (msf) with Bengaluru witnessing deferment of 2 malls amounting to over 500,000 sf. Meanwhile, Pune witnessed deferment of 1 mall of 430,000 sf of retail space, Hyderabad saw deferment of 1 mall of 200,000 sf of space and Kolkata noted deferment of 120,000 sf of retail space (remaining supply of a mall which got partially operational during Q4 2013).

Healthy leasing activities and enquiries have resulted in overall vacancy levels in malls to be maintained at 14.5% on Q1 2014. Hyderabad witnessed the highest quarter on quarter (q-o-q) drop of close to 1.1 percentage points in the overall mall vacancy. Buoyant demand from apparels, footwear, food & beverages (F&B) segment retailers led to this drop. Further, Bengaluru and Kolkata recorded drop of 0.9 and 0.3 percentage points respectively due to sustained demand for quality mall spaces from apparels, footwear and F&B brands. Ahmedabad and Pune were the only two cities witnessing rise in vacancy levels of 1.3 and 1 percentage point respectively. While the new supply pushed up the vacancy levels for Pune, relocation of brands from malls located at S.G. Highway in Ahmedabad contributed to this mall vacancy rise.

Sanjay Dutt, Executive Managing Director-South Asia, Cushman & Wakefield commented, “With multi brand retailers like UK based Tesco getting approvals from Foreign Investment Promotion Board and RBI allowing foreign retail investment in tax free Rupee bonds, the retail sector is sure to see a new growth trajectory. Developers now need to develop deep understanding of retail space requirements of international brands and serve them accordingly in times to come.”

MALL SPACE RENTALS

According to C&W, mall rentals were noticed to be steady across most cities except Chennai, Mumbai and Pune. Owing to Hadapsar (Pune) picking up as a shopping destination, malls located in this location recorded a q-o-q rental uptrend of 10%. High demand for quality retail spaces led to q-o-q rental increase of 5% in Chennai Suburban (West). Dearth of quality mall space availability coupled with high demand led to 4% rise in mall rentals at Lower Parel (Mumbai) over the last quarter. On the other hand, weakening of trading density in Bund Garden/Koregaon park (Pune) and Camp (Pune) led to q-o-q mall rental drop of 9% and 3% respectively. High vacancy levels led to correction of mall rentals in Mulund (Mumbai) resulting in q-o-q drop of 5%.

HIGH STREET RENTALS

Khadar Nawaz Khan Road (Chennai) witnessed highest q-o-q appreciation in main street rentals (5%) owing to its increasing prominence as shopping destination. MG Road (Pune) recorded over 3% q-o-q rise in main street rentals owing to limited quality retail spaces. Further, Aundh (Pune) registered a rise of nearly 3% q-o-q in rentals due to high preference by brands owing to the strong residential catchment in proximity. Vittal Mallaya Road main street witnessed the highest quarterly rental drop of 7% and main streets like Usman Road-North (Chennai), Koregaon Park (Pune), and Velachery (Chennai) noted a q-o-q drop of 4% each in wake of weak of trading densities in these locations.

[1] National Capital Region (NCR), Mumbai, Bengaluru, Hyderabad, Chennai, Kolkata, Ahmedabad & Pune