The journey of shopping centres and malls in India is not very old. In fact, it is yet to even celebrate its silver anniversary. But then the market has matured at a rapid rate. It has seen its fair number of ups and downs. From a boom to a burst to now a slow, steady and calculated growth, the journey covered has been enthralling, filled with lessons and experiences.
Retail real estate in India has played a primary role in setting the pace for retail revolution in the country. It was only with the launch of shopping centres that India has seen brands blooming, encouraging young entrepreneurs to launch new brands and foreign companies to foray into India.
Shopping Centre News spoke with experts to learn more about the retail real estate dynamics as seen in 2018 and their forecast for 2019.
Catching Up on the Frenzy
Accentuating the potential of retail real estate, Anuj Kejriwal, Managing Director & Chief Executive Officer – ANAROCK, says, “The fact that 35 percent of luxury shopping sales come from Tier II and III cities alone is urging top brands to explore these markets.”
35 percent is no small number, especially when it is in context of the appetite of shoppers from small towns and cities to go shopping for luxury goods. This implies that these places may be facing a dearth of good retail spaces, the need of which can well be cashed upon by mall developers. So, better the options, better the sale and stronger the fight for more retail space by brands which eventually draws a full circle on the need for retail real estate space in places beyond metros and Tier I cities and towns.
To drive home the point on what the lack of space is currently leading to, Kejriwal explains, “The lack of sufficient physical retail infrastructure in these cities is giving the e-tailing business an advantage – nearly 50-60 percent sales of e-commerce companies are generated from Indian Tier II and III cities alone.”
He further adds, “Realising the potential of these largely untapped markets, both domestic and international brands have started penetrating here via rapid online presence, followed by a gradual offline presence.”
Should it then be surprising for us to further learn that out of the total new supply becoming operational in 2019, nearly 3 million sq. ft. area will be coming up in Tier II & III cities alone.
According to Kejriwal, the cities that will see new malls opening in 2019 include Chandigarh, Dehradun, Lucknow, Ranchi, Rourkela, Solapur, Udaipur and Vizag. Tier II & III cities that flourished in 2018 included Ahmedabad, Bhubaneshwar, Chandigarh, Coimbatore, Indore, Jaipur, Lucknow, Kochi, Nagpur, Thiruvananthapuram and Vadodara.
Offline Vs Online
The tug-o’-war between online and offline retail has also slowed down, with critics realizing that while there was some dent initially on brick-and-mortar from e-commerce, the dust has settled, and physical retailers have worked hard to pull consumers back, showing the why offline stores are more attractive. Key online players in niche categories have been opening their offline stores.
In fact, according to Arvind Singhal, Chairman – Technopak Advisors, “First and foremost there was a feeling in the mind that e-commerce is going to make a big impact and slow down the growth of brick-and- mortar retail, but that has certainly not been the case. It is the other way round. So, this should be really reassuring to the developer that the demand for good quality retail real estate will continue for many years to come. In India, the availability and affordability of good retail real estate is very limited.”
Adding to this, Susil S Dungarwal, Chief Mall Mechanic, Beyond Squarefeet Advisory Pvt. Ltd. shares, “The onslaught of online has reduced and many online players have now started with their brick-and-mortar formats, giving enough impetus to malls.” From brands like Nykaa to Pepperfry, there is a strong offline presence of online players in India.
Dungarwal forecasts mergers and acquisitions, an amalgamation of malls in India. According to him, “Chain malls are already scouting for new locations or talking to various existing malls to acquire and ramp up their growth speed. Large and multiple mall developers will be driving the retail revolution in 2019 though the single mall developers shall remain at the mercy of retailers.”
This can be cemented with an example of The Phoenix Mills Limited (PML), which is undoubtedly considered as India’s largest retail-led mixed use developer with an operating portfolio of about 6 million sq. ft. PML undertook four new acquisitions this year – a land parcel each in Bengaluru (Hebbal) and Ahmedabad (Thaltej) along with acquisition of under-construction retail assets in Indore and Lucknow. Apart from this, PML had acquired a land parcel in Pune in Aug 2017 which takes the underdevelopment portfolio to 4.6 million sq.ft. which is expected to be operational by FY23.
As per information shared by PML, the company witnessed consumption of close to Rs 6,400 crore across its portfolio in FY18 and robust rental income growth of 16 percent in H1FY18.
Raheja Group’s Inorbit Mall is another name to prove the power of chain malls. Each of their malls are leaders in the cities they operate in. From small retailers to big brands, each of them are vying for space at their malls.
Decoding the Tier II & III Shopper and Shopping Pattern
Internet penetration across India has built up aspiration levels of those living in smaller towns and cities. The madness of city life comes with a cost –rent and maintenance, commuting expenses and the ever-rising costs of education. These indirectly eat more into spending powers of consumers, compared to their Tier II & III counterparts, who consequently, have more disposable income. From a developer’s point of view, the cost of land in smaller towns is better than what they would pay if they have to build a mall in a Tier I city.
Kejriwal elaborates, “Several factors working favour of Tier II & III cities. While metros face mounting challenges in the form of overall saturation due to lack of space, increasing rental values and escalating infrastructure woes, smaller cities have been witnessing multiple infrastructure upgrades even as technological enhancements help create more awareness about brands, products and markets there.”
Profiling the shopper, he explains, “The contemporary Indian shopper in Tier II and III cities is more demanding and aware and has higher disposable income than ever before. A large segment of Tier II & III city customers are globetrotters, and this has necessitated a revolutionary change in the way the retail sector must adapt to tap into their demand.”
Kejriwal further adds, “One of the radical shifts in the consumption pattern of new-age consumers in smaller towns is that these shoppers are moving beyond the basics and seek to buy products available in the larger urban areas. Therein lies a massive opportunity for retailers.
Nearly 100 million people out of the 300-400 million-strong Indian middle-class currently reside in smaller towns and cities.”
Tier II & III cities are for going to be the game changers for retail real estate development in India. The format that would differentiate one mall from the other would be design – to accommodate big box stores unlike before since a lot more brands, especially international brands and supermarkets and hypermarkets, which are looking at stores that are above 30,000 sq.ft. in space.
Talking on the formats that would drive the Indian Retail Real Estate market, Singhal points out, “We shall see requirements in two formats – the big box format and the small stores (1,000 to 2,000 sq.ft in space). There is still a lot of growth in the area of having big box stores i.e. stores that are above 30,000 sq.ft. A new shopping center that comes up with only space for small stores will find it extremely difficult to survive. The big box format that will drive shopping centre design for 2019 will see a lot many online players coming into malls as well. For example, Urban Ladder and Pepperfry. Also, supermarkets as a category have picked up in shopping centres with local supermarkets are upgrading themselves and looking for spaces in malls as are electronics and furniture brands. Shopping centres that will be successful in 2019 will have a varied mix of food and brands for retailing as well as a configuration that allows large format spaces.”
In terms of regional forecast, Dungarwal sees a lot of potential in East India and according to him 2019 will be a watermark year for retail real estate development in this region.
“The highest growth this year was in Eastern India followed by South and then North. East India is growing both in terms of malls and also high streets with over 5 million sq. ft. of new retail real estate space. We see strong traction in this region with very good response from business perspective,” he says.
He further points out that what has been a bit stagnant i.e. mall development in regions like Gujarat and Rajasthan can see a quick turnaround in 2019.
“Bhubaneswar and Odisha will see a sudden splurge of movement with more than three malls to be launched in the first quarter of 2019. Surat, Baroda and Ahmedabad will also see new malls coming up. South Kerala looks promising as well,” he says.
Kejriwal adds his views stating, “Going by the current trends and our future predictions, the major metros that will outshine the rest in 2019 will be NCR, MMR, Bengaluru, Kolkata, Ahmedabad and Lucknow as far as brand expansion and new mall supply is concerned. Following the underlying demand for both national and international brands in most of these cities, retail activity is likely to see a major increase. In order to stay relevant, brands will take both the online and offline route to reach out to larger audiences given the fact that total consumption expenditure in India is projected to rise to US$ 3,600 billion by 2020.”
Elaborating on the development to be seen in Tier II & III cities and towns, he shares,“The boom in India’s smaller cities is impossible to ignore. As per industry estimates, the market size of Tier II & III cities is expected to grow from the current US $5.7 billion to US $80 billion by 2026. India’s Tier II & III cities are definitely well-set to be the growth engines of the country’s retail future, and mall developers as well as retailers are actively looking to expand there.”
Bimal Sharma, Head – Retail, India for CBRE South Asia Pvt. Ltd., says, “Consolidation amongst developers (residential), greater use of technology (office), influx of quality supply in warehousing (logistics) and increasing prominence of Omniretail are some of the key trend that will emerge stronger during 2019.”
Adding to Sharma’s point on consolidation amongst developers, Singhal is optimistic on the success of mix used development spaces that include residential, commercial and retail. However, he adds that these would be successful only if the developer steps into the shoes of the retailer and thinks like one while designing the retail space. As per the recent Retail 2.0 report by CBRE, positively influencing government strategies for growth and working in tandem with domestic groups, such large retail chains will help contribute to strategic, operational and financial synergies in the system which would then drive the country’s retail market on to a higher trajectory.
Driving Forces: F&B & Entertainment
With practically no leisure and entertainment options available to people in India, it is little surprise that malls and shopping centres have taken the onus of offering their shoppers complete value for the time they spend there. In fact, as Singhal rightly points out, shopping is not the criterion for visiting malls anymore as recreational activities offered by these centres is what drives people to them.
“Shopping centres are the only form of entertainment for a majority of the people in our country. That is why in malls, food courts are doing very well along with cinemas as well. Shopping in my opinion is not the primary driver for entertainment but food is becoming a primary driver and we see a lot of good shopping centres redoing their food courts. This actually drives traffic and not brands.”
Reiterating this, Sharma says, “On the retail front, consumption demand is expected to remain strong in the coming year. We expect greater demand for midmarket, bridge to luxury brands.
Majority of the leasing will be driven by F&B, hypermarkets, while we will see greater demand from retail-tainment and multiplex brands as well. Also, retailers are set to experiment with more creative formats including digitalisation.”
Kejriwal points out that in 2019, mall developers will continue to give major emphasis to F&B, multiplexes and entertainment centres as shoppers’ quest for experiential retail is expected to rise.
“The influx of international retailers, growth of F&B coupled with increasing entertainment offerings will continue to make malls key recreational destinations,” he says.
Apart from food and entertainment, activities organised by malls are also huge crowd pullers. This could include holding music events and shows, international concerts, cooking competitions, fashion shows, meet and greets with Bollywood celebrities. A lot of malls also make it a point to engage little children through various competitions and this eventually leads to better footfalls.
Inorbit has a year-long events calendar and hosts some unique events every month to create a buzz among its target audience. During the festive season all of their five malls i.e. Mumbai (Malad and Vashi), Bangalore,
Hyderabad and Vadodara welcome customers with larger than life décor, special offers and exciting giveaways. For example, this year for Christmas Inorbit malls will be dotted with life size installations and Christmas trees that will form a perfect selfie point for the shoppers.
Unique engagement activities like special snowfall zones, Santa meet and greet, Doraemon and Shinchan visits will keep shoppers hooked during the festive season.
Location is Still the Hero
No matter how good the mall design is and how interesting the brand mix and the food and leisure options, everything boils down to the location of the mall and the commuting convenience it has for the people of a particular city. A mall today has graduated from being relevant to only the catchment it is located in. If a location is easily accessible where one doesn’t have to worry about encountering traffic or if it can be reached easily using public transport, it is sure to succeed.
Malls that are developed as part of mixed-use businesses too, have a higher survival rate if planned well.
Kejriwal says, “Besides being mixed-use businesses that incorporate social entertainment options, malls will strive harder in 2019 to provide unique appeal along with more depth in shopping experience. Any new mall ventures in 2019 that are designed to succeed will focus on prime locations that are easily accessible by both public and private transport.”
Turning the Tide with Technology
Not just retailers and brands, but malls too need to tap into the technological wonders for growth but making use of technology to be ahead of the curve and match up with the changing demand dynamics of the shoppers rests with the malls as well.
According to Kejriwal, tech-driven aspects like Artificial Intelligence (AI), data analytics, geo-tagging, Omnichannel shopping network setc. and consumer-centric platforms such as Augmented Realty (AR) or Virtual Reality (VR) will play an even bigger role in 2019.
“Innovative theme-based innovative marketing techniques,social kiosks, buy-online-pickup- offline facilities – anything else that adds to the ease and enjoyment of the shopping experience – will be winning tickets for mall owners.” He hits the nail right on the target when he says, “In fact, the key differentiator of the malls of the future vis-à-vis those of today will be the increasing integration of such technologies and multi-channel strategies in retail developments.”
A Quick Rundown
The year 2018 may not have seen some path-breaking retail real estate developments but the year can be considered important that would contribute towards meaningful retail real estate development in years to follow.
Sharma accentuates this, saying, “The year 2018 is the first after several years wherein sales/demand has been marginally ahead of new supply entering the market; as developers were reluctant to launch new projects, given the dynamic regulatory environment. 2018 YTD (year to date) sales were roughly 76,000 units, higher by 20-25 per cent y-o-y. 2018 YTD new supply was roughly 73,000 units, an increase of 18-20 percent on a y-o-y basis.”
Encapsulating the year, Kejriwal says, “Among the major policy overhauls, the government further liberalized FDI policies early in the year. These policy interventions repositioned the Indian retail sector on the global map of investments, attracting a large number of global retailers into India and further fuelling growth of organised retail in the country. The government’s decision to allow 51 per cent FDI in multi-brand retail and 100 per cent FDI in single-brand retail under the automatic route was a definite crowd-pleaser that attracted giants like Walmart to make forays into the country.
The government is now mulling to further tweak norms for retail trade – similar to SEZs – and enacting a 365-days working policy to help India climb higher on the Ease of Doing Business index among 190 countries.”
According to him, the sector is now projected to grow from US $672 billion in 2017 to US $1.3 trillion in 2020. He supports this by giving facts. “This is definitely an attainable figure if we consider one of the clearest measures of growth – namely the increasing focus on the retail sector by private equity (PE) players who invested close to $300 million in Indian retail in the first half of 2018.”
The total PE investment inflow in the segment grew 54 percent in H1 2018 as compared to H1 2017, whereas the y-o-y share also grew to 9 percent (H1 2018) from 2 percent (H1 2017).
As people evolve, so do their needs and choices. And this makes retail interesting. One cannot afford to take a break in retail. It is all about being a step ahead than the shopper.
As Kejriwal rightly puts it, “Both retail real estate developers and retailers will have equal roles to play in 2019, and we will not see the year favouring either side. In fact, there will be some degree of consolidation of both the retailers and mall developers. Even though the Indian retail market is growing exponentially, some retailers will have to shut shop owing to the rising rentals in malls across metros. Many such retailers will need to re-strategise their businesses in 2019 and probably look at other alternatives, including ecommerce.”
Sharma adds to this saying, “The Indian retail sector stands at the cusp of transformation with the retailers increasingly adapting their store formats to address the needs of different customers / markets and locations. Digitally enhanced store experiences are becoming a reality and such technologies are expected to become a norm in the years to come. Brick-and-mortar stores and shopping centers will continue to flourish; however, retailers and developers will have to realign their formats to deliver to specific expectations of the customers they service.”
Kejriwal summarizes,“It is going to be about being present in the right locations, offer the right product and become unrelentingly customer-centric.
Similarly, developers need to build their malls in not just the right location but also have the right mix of brands and provide a holistic shopping and entertainment experience to ensure returning customers in sufficient numbers.”