“South India Retail & Realty Report” gives out key figures and lays out directional parameters for industry
“Organised retailers need also consider social profitability alongside company profitability,” says governor of Karnataka.
“Food & Grocery segment accounts for more than 65% of the country’s 50 million people currently employed in retail and sustainable growth of Indian retailing is possible only if organised retail devises a role for the ‘thelawalas’ and hawkers,” says the study.
The Shop at Bangalore concluded on May 31 with the release of “South India Retail & Realty Report: 2015 and Beyond” by HE Sri Triloki Nath Chaturvedi, the governor of Karnataka. The report deals with the southern retail market with special focus on the food and apparel retailing segments, besides exploring the real estate market down South.
Retail is important primarily because the industry is the second largest employer of manpower, second only to agriculture – 50 million are currently engaged in this industry and the number is projected to increase to 61 million by 2010. South Indian states account for 21.5% of the country’s workforce engaged in retail.
Today, when only 0.8 per cent of the Rs 743,900 crore food & grocery retail in India is organised, 1.2 per cent of the retail segment stands organised in the South. Precisely the reason why most big players, domestic as well international, chose to first touch base in the South and then expand to other regions. “Organised food & grocery retailers in the South, therefore, have an added responsibility of presenting to the country a model that absorbs the thelawala s and hawkers into its fold, rather than displacing them,” stressed GD Singh, research director, Images, while speaking at the book launch.
The observation found support from the governor when he emphasised that “Organised retailers also need to consider the social profitability aspect rather than just concentrate on company profitability.” Food & grocery, which accounts for 62% of the retail market, employs more than 65% of the workforce.
The mere size of this retail segment and the vast employment it provides in the unorganised sector, makes it mandatory that the future growth of this segment be panned out very meticulously, stressed the speakers at the book release.
South India was an early mover in setting up organised retail chains – prominent examples include Nilgiris, Nalli’s, Pothy’s, Saravana Stores, Viveks, Trinethra, Café Coffee Day and Subhiksha. Relatively lower real estate costs, peaceful social environment and stable governments in comparison to other regions, have helped southern organised retailers in expanding their businesses at a faster pace. Increasing job opportunities for educated youth in the South, especially in the IT/ITES sector, has led to greater disposable incomes and a ready customer base.
Quality real estate space is a key concern of the retail industry in India. With recent changes in the regulatory environment, the opening up of the market to foreign investors, the growth of private equity and rising demand for posh residential and commercial premises, are factors that are gradually transforming the traditional real estate sector into a more transparent and accessible market. The same holds true for the real estate scenario down South.
Images F&R Research, with Cushman & Wakefield as knowledge partners, conducted the South India Retail & Realty Report study. Given below are a few key points from the report:
South India retail market size
The retail market in South India is valued at Rs 262,930 crore (at 2006 current prices). Out of this, the size of the organised retailing market in 2006 stood at Rs 12,825 crore, comprising 4.9 per cent of the total. Only 4.6 of the all-India retail market was organised in 2006.
In nine out of 13 retail categories, the South market is better organised than the country average.
Of the major southern states, the organised retail constituent is highest in Karnataka (5.3%), followed by Kerala (4.8%), Andhra Pradesh and Tamil Nadu (4.7% each). Pondicherry is 5.3 percent organised.
F&G is the largest retail category (South India : Rs 162,313 crore; all-India Rs 743,900 crore), and here, in the South 1.2 per cent is organised, as against 0.8 per cent for the whole of India.
Fashion is the largest category in the organised retail segment, valued at Rs 4,665 crore and comprising 19 per cent of the organised market share in South India.
Employment in retail
With organised retail growing at an annual average of 45 per cent, the industry is gaining higher weightage in the overall sectoral employment outlook ranking. The retail, media and FMCG sectors together score highest with 8 points in the 2006 Retail Labour Index, followed by the infrastructure sector (7 points).
There are about 15 million retail units in the country, including the paan stalls and neighbourhood kirana stores, and about 50 million people are dependent for their livelihood on these.
Retail and wholesale absorbs 8.7 per cent of the country’s total workforce.
South India employs nearly 21.5 per cent of the 50 million people engaged in retail and wholesale, which is roughly 11 million.
In Karnataka, 9.4 per cent of the employed/self-employed people are engaged in retail and wholesale activities. Among the South states, Andhra Pradesh has the highest absolute numbers engaged in this sector, which is 3.6 million.
Future projections show that retail will generate nearly 11 million additional jobs across the country by year 2010, when the share of retail in total employed will go up to 9.9 per cent (equivalent to 60.6 million).
The percentage share for Karnataka will be 10.8 per cent (3.55 million) in 2010, for Andhra Pradesh it will be 9.8 per cent (4.3 million), followed by Tamil Nadu (3.12 million) and Kerala (1.8 million).
South India real estate market
By year 2007-08, an estimated 100 million square feet of quality shopping centre space is expected to generate retail sales of over Rs 50,000 crore (US$11 billion). Concurrent with the growth in organised retail, the present two square foot-per-capita retailing space will rise by 15-20 per cent by 2010. By year 2011, roughly 300 million square feet of additional retail space is likely to be generated.
Currently, there are about 200 operational malls, and this number is expected to rise to almost 600 by the year 2010-11. Of the new malls coming up, 40 per cent are concentrated in the country’s smaller towns and cities.
The total supply of shopping centre space in South India is 14.1 million square feet (2006-07), accounting for an increase of about five million square feet over the space available in 2004.
On the basis of announced projects, by end-2007 the North zone will account for 41 per cent share of the total shopping centre space in India, followed by the West zone accounting for 35 per cent share, and the South with 16.8 per cent share. The remaining 7 per cent developments will take shape in the East.
Residential Market
There has been an incremental rise in the capital value of real estate residential properties across all centres during the review period, with the year 2007 being witness to the highest rates (Chennai: Rs 9,300/ square foot, Bangalore: Rs 7,175/ square foot, and Hyderabad: Rs 3,875/ square foot). Chennai has consistently led the residential market over the years. However, Bangalore and Hyderabad have followed closely behind.
Influx of expatriates has resulted in more demand for high-end residential properties in all metros. This has led to increase in rental values by about 25-45% in all prime residential markets across the country.
There is demand shift from central locations to suburbs, owing to more supply and lesser rentals
The long-awaited Comprehensive Development Plan (CDP) is also expected, which proposes an additional Floor Area Ratio (FAR).
As a result of a glut of IT companies, foreign banks and the booming retail market in Chennai, capital values and rentals are expected to rise further in 2007.
Commercial market
Capital values of commercial real estate properties saw a fall in rates between 2002 and 2003, followed by consistent rise till 2007. This phenomenon was visible across all the three metropolitan centres of South India.
Rates were highest in 2007 (Chennai: Rs 4,920/ square foot, Bangalore : Rs 4,400/ square foot, and Hyderabad : Rs 3,633/ square foot), and lowest in 2003 (Chennai: Rs 2,720/ square foot, Bangalore : Rs 3,180/ square foot, and Hyderabad : Rs 2,000/ square foot).
Bangalore set the rates in commercial property prices from 2001 to 2005, till Chennai surpassed Bangalore in 2006. Commercial rates in Hyderabad were low throughout the review period, compared to the other centres.
Commercial rentals saw a fall in rates during 2003 and 2004, followed by a rise till 2007. This phenomenon was visible across all metros, except Hyderabad, where there was an incremental rise throughout the review period. Rates were highest in 2007 (Chennai: Rs 47/ square foot /month, Bangalore : Rs 46/ square foot /month and Hyderabad : Rs 38/ square foot /month).
Overall rates have been highest for Chennai, followed by Bangalore and Hyderabad.
About 70% of demand for office space in India is being driven by the IT/ITES & BPO sectors.
Tier III cities of South India are set to fast catch up with the market. These cities (Coimbatore, Thiruvananthapuram and Kochi) are benefiting from the marked price increases in the office markets of the top three cities.
Retail market
Capital values saw an incremental rise in rates throughout the review period across all centres. Rates were highest in 2007 (Bangalore : Rs 17,083/ square foot, Hyderabad : Rs 16,388/ square foot, Chennai: Rs 11,014/ square foot). Bangalore shows the highest capital value rates, followed by Hyderabad, with Chennai attracting the least among all three centres.
Bangalore indicates the highest retail rentals, followed closely by Hyderabad, with Chennai having the least retail rental rates among all three.
REALTY FORECAST
According to Cushman & Wakefield, the next decade will see the residential sector continuing to hold the largest pie of the real estate demand, followed by commercial, hospitality and retail, with demand for organised real estate increasing by about 8-9 times. The coming decade will see the widening of the economic net into smaller cities, towns and even the rural sector (through the retail sourcing boom). The overall benefit will be upliftment of the societal and educational levels, and this will lead to India becoming a country with greater opportunities than before.
