Home Big Grid Karnataka’s retail market – strong fundamentals

Karnataka’s retail market – strong fundamentals

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South India has long been considered a pioneering base for organised retail in India. In fact, the state of Karnataka has been at the forefront of a retail transformation with several firsts to its credit – Bengaluru was home to the largest kids toy store of the country () way back since 1990 and it now houses one of the largest malls () of south India.

Among all cities in the state, Bengaluru undoubtedly has been one of the most active retail markets. The booming IT industry and subsequent influx of a large migrant population over the last two decades had an unprecedented impact on the city’s residential real estate. Inevitably, it led to immense growth of the retail sector. To its advantage, the city’s diverse consumer mix provides great insights into consumer behaviour in the retail fashion industry. That’s why the city is a major hub for retail fashion with most international and national brands making their way here.

In terms of organised retail, Karnataka presently has close to 50 operational malls across the top cities and Tier 2 and 3 cities, as per ANAROCK Research. Bengaluru alone has nearly 36 operational malls – the same number as that in entire MMR. Interestingly, tier 2 and 3 cities including Mysore and Hubli have also seen decent retail growth. Both cities currently have five operational malls each.

Going forward, data indicates that as many as six new malls spanning 2.5 mn sq. ft. area are likely to come up in Karnataka by the end of 2021. Five of these will be located in Bengaluru while one in Mysore.

& Retail Rentals

Way back in 2016, to give a major boost to the retail sector, the state government approved the first retail policy of the state – Karnataka Retail Trade Policy 2016. The policy aimed to attract new investments including FDI and creating additional employment opportunities exclusively within the retail sector. The positive impact could be felt thereafter with Bengaluru receiving total private equity investments of USD 275 million between 2015 till 2019.

As for 2020 – when the retail sector all across was worst-affected due to – private equity investments too saw a major dip. However, we saw Brookfield Asset Management conclude a portfolio deal of nearly USD 2 billion into (approx. 12.5 mn. sq. ft. of its total real estate assets) including Mall in Bengaluru. It was touted to be the largest-ever deal in Indian real estate.

Moreover, another portfolio deal of USD 1.5 billion between and (that was supposed to get closed in December 2020) is now likely to conclude sometime in 2021. The assets include ’s nine malls across southern cities including Bengaluru.

From the perspective, the key cities in the state have fairly reasonable rentals. In fact, the prevailing average monthly rentals in top high street markets of Bengaluru – Brigade Road, Indiranagar 100 Ft. Rd, Commercial Street, Jayanagar 11th Main Rd. – hover anywhere between 200-300 per sq. ft. This is at least four times less than the most expensive retail destination in the country – Khan Market in Delhi which commands a monthly rental greater than INR 1,200 per sq. ft.

The Way Forward

There is no denying the huge potential that entire South India has offered to retailers over the last decade or more. In fact, it is presently at an interesting inflection with the segment poised to see organized growth in the future – in both physical retail and e-commerce. Besides physical retail growth, e-commerce in the top city of Bengaluru – Silicon Valley of India and the hub of Indian start-ups – saw exponential growth in the last few years. More than ever, post COVID-19, the way forward for the entire retail sector is to adopt a growth model that is inclusive of unorganised retailers as well.

Moving on, post the , we are now beginning to see green shoots of revival in the overall retail sector with a U-shaped recovery. While essential goods like food and grocery, followed by apparel, FMCD and electronics, furniture and home furnishings and are seeing a V-shaped recovery, other segments like beauty, wellness and personal care and home essentials may take 2-3 more quarters for full recovery.