The retail landscape in India has been going through a transformation in recent years. From basic brick-and-mortar stores, today, the retail scene has evolved into one where customer experience, convenience and creation of wholistic social spaces are defining the future of this segment.
Globalisation, rising disposable incomes, changing consumption patterns with added expenditure on shopping, eating out and entertainment, is leading to a significant rise in demand for quality retail in the country. The real estate sector is also responding positively to these changes. Understanding the potential growth opportunities, developers have been focused on creating quality retail spaces that meet the real estate needs of domestic and international retailers.
High-Street markets are thriving due to rising demand for such spaces from specific retail categories including F&B, Indian womenswear, jewelry and so on. Continued improvements of physical infrastructure aimed at improving connectivity, availability of parking etc. have also led to re-emergence of high-street micro-markets as preferred shopping destinations for neighborhood shoppers.
Contributing further to the development of retail real estate as a viable investment option is the fact that developers and mall managers are ensuring their projects provide the best in class services to retailers and customers. These range from mall management by mall operators, concierge services, day care facilities and much more. Additionally, competition from e-commerce, and creation of a retail eco-system where a consumer can shop-eat-play is fueling the sector’s growth.
This transformation has been aided by the liberalization of India’s economy over the past few decades and more recently, thanks to focused policy reforms undertaken. Looking back, this transformation began in 1997, when up to 51 percent FDI in cash-and-carry was permitted. This resulted in the emergence of new retail formats in the country. Fast forward few years later to 2011, retail received a further boost when key announcements including permitting 100 percent FDI in single brand retail (51 percent automatic) and up to 51 percent FDI in multi- brand, retail were made.
The period between 2011 and 2012 was also critical from an e-commerce standpoint, with several Indian companies witnessing heightened activity in this space. With FDI in retail opening up, the segment has witnessed heighted investment activity from Private Equity Funds and wealth firms.
According to market data, in 2016, close to USD $700 million investments in retail assets from PE firms and wealth funds entered the market. In 2017, this figure increased by approx. 15 percent to touch US $800 million, signifying the long-term investment potential of the segment. Most recently, the announcement allowing 100 percent FDI via the automatic route has provided a much-needed boost to the sector.
As per CBRE research, several global brands have been entering the country over the past few years. In 2017, more than 13 new brands established their footprint in India. This was in addition to the 19 new brands that came in the previous year. while fashion apparel continues to dominate the market, the F&B segment is also witnessing heighted activity in recent years.
Keeping the changing consumer mindset at the forefront of their plans, retailers have been quick to customize their offerings as required. With the advent of e-commerce a few years ago, retailers today are aware of the benefits of having both an online and offline presence. This has led to the emergence of omni channel retailing. Additionally, new concepts including F&B clusters and experience stores, along with the advent of technology in the sector are further enhancing the investment potential of retail in the country.
Grade A projects which are strategically located, have a good design and zoning plan, fair brand mix and an overall potential for being turned around for higher profitability; have witnessed investments from PE investors. Increase in demand for quality space from retailers, who wish to enter and harness the potential of such spaces, have also led to increase in supply as well as rentals in these cities.
Over the past few years, a significant quantum of private equity investment has been recorded in Gurgaon, Mumbai, New Delhi and Bangalore. Select quality developments in smaller cities like Chandigarh and Indore have also garnered investments. Some of the key investments firms in this space include Virtuous Retail, GIC and Blackstone. It is not only sovereign wealth funds who are investing into India’s retail growth story. Property funds and even developers are recognizing the potential of the sector and making focused investments.
With REIT’s coming in, the investment environment for retail will continue to be positive. It will facilitate the development of better quality assets that are well managed and strategically leased out. As the economy opens up further, capital inflows into the country across real estate asset classes are expected to improve which in turn will boost the sector.
