India's retail sector on an upward growth trajectory

Led by robust consumer demand, India’s retail sector manifested a strong comeback and is witnessing a significant increase in footfall and sales.

August 08, 2023

India’s retail sector manifested a strong comeback in 2022, and the growth momentum continued in the first half of 2023. Stable economic conditions and resumed consumer confidence have propelled strong leasing momentum and new store launches by both national and global retailers. There has been an increase in demand for quality retail spaces as they have good management, robust support infrastructure, and low vacancy levels. Malls are re-inventing themselves by adopting placemaking initiatives as shoppers seek differentiated experiences and amenities that are not available online.

Encouraged by the positive retail growth narrative of India, various established developers and global retail conglomerates such as Lulu Group and Ingka Group have made announcements to launch mall developments in the country. Recently, Ingka Centres announced the launch of the brand Lykli for its mixed-use retail in India, and its first centre will be opened in Gurugram in 2025.

In H1 2023, around 1.1 million square feet of mall supply was recorded with additions in Hyderabad and Delhi NCR, taking the retail stock to 89 million square feet across the top seven cities of India. The retail sector is expected to see an addition of approximately 40 million square feet of shopping mall stock between H2 2023 and end-2027 among just the top seven cities. Delhi NCR is leading in its contribution to mall supply with a 34% share, followed by Chennai (19%) and Hyderabad (14%). Interestingly, around 24% of the supply (approximately 9.8 million square feet) will come from institutional owners.

Figure 1: Supply of shopping malls (H2 2023-2027): 40.78 mn sqft

Source: JLL Research & REIS

Increasing institutional investment in retail

The growing institutional investment in retail real estate is a testament to its strong growth potential. The prominent institutional players such as Nexus Malls, Virtuous Retail, Lakeshore India Advisory, CPPIB, and GIC have substantial Grade A operational/upcoming mall portfolios across the country. The investment in retail developments is also fostering the upgradation of existing malls and the adoption of best practices by the developers to stay relevant. Recently, India’s first retail asset-led REIT-Nexus Select Trust launched its IPO in March 2023. The response to the IPO (over-subscribed by 5.4 times) is also reflective of buoyant investor confidence.

India has positioned itself firmly on the radar of international retailers

More than 12 global brands from across the retail categories entered India in the last 18 months. Most of the brands have opened their first stores in India at superior-grade retail developments in Delhi NCR and Mumbai. F&B brands such as Tim Hortons, Popeyes, and Pret-A-Manger have entered India, seeing its favourable demographics and positive economic conditions. Retail chains such as Reliance Retail and Aditya Birla Fashion and Retail Limited (ABFRL) are forming partnerships with global brands to bring them to India. Recently ABFRL entered into a strategic partnership with Galeries Lafayette to open luxury department stores in the country.

The outlook for the retail sector is bright, given the strong economic fundamentals and consumption growth story. The inherent growth potential of the sector is robust and will lead to a rise in leasing demand by retailers and more investment by institutional funds to develop superior-grade shopping malls in the country.