Big Box Formats, Tier II Cities To Drive Retail Real Estate In 2019
Shopping Centre News|December 2018 - January 2019
Big Box Formats, Tier II Cities To Drive Retail Real Estate In 2019

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…

Zainab S Kazi

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 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.

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December 2018 - January 2019