Retail real estate: A review of 2018 and predictions for 2019

According to Anuj Kejriwal, MD & CEO, Anarock Retail, “The Government’s decision to allow 51% FDI in multi-brand retail and 100% 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.”

The retail sector is now projected to grow from $672 billion in 2017 to $1.3 trillion in 2020. Kejriwal says, “This is 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% in H1 2018 as compared to H1 2017, while the y-o-y share also grew to 9% (H1 2018) from 2% (H1 2017).

Meanwhile, online retail also witnessed exponential growth in 2018. In fact, as per estimates, ecommerce is expected to go on par with physical retail over the next 5 years, considering that ecommerce grew by as much as 23% to reach $17.8 billion in 2017. India is poised to become the world’s fastest-growing e-commerce market, driven by robust investment in the sector and rapid increase in the number of internet users in the country.

Kejriwal tells us that besides the top metros, tier 2 & 3 cities also caught a significant part of the entire retail growth momentum. Tier 2 and tier 3 cities that continued to flourish in 2018 included Coimbatore, Chandigarh, Jaipur, Lucknow, Kochi and Thiruvananthapuram.

“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. The fact that 35% of luxury shopping sales come from tier 2 and tier 3 cities alone is urging the top brands to explore these markets,” he says.

Also, the lack of sufficient physical retail infrastructure in these cities is giving the e-tailing business an advantage - nearly 50-60% sales of ecommerce companies are generated from Indian tier 2 and tier 3 cities alone. Out of the total new supply becoming operational in 2019, nearly 3 million sq. ft. area will be coming up in tier 2 & 3 cities.

Kejriwal believes several factors are working in favour of tier 2 & 3 cities. Nearly 100 million people out of the 300-400 million-strong Indian middle-class currently resides in smaller towns and cities. While the metros face mounting challenges in the form of overall saturation due to lack of space, increasing rental values and escalating infrastructure woes, the smaller cities have been witnessing multiple infrastructure upgrades even as technological enhancements help create more awareness about brands, products and markets there.

As per ANAROCK data, the cities that contributed most generously to the Indian retail growth story in 2018 included MMR, NCR, Bengaluru and Kolkata. 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 $3,600 billion by 2020.

2019 - Great Expectations

As per ANAROCK data, as many as 32 new malls spanning nearly 13.5 million sq. ft. area are slated to be operational in 2019 across the major cities and several tier 2 & 3 cities. Among the major metros, both Bengaluru and NCR are expected to see 7 operational malls in each city, followed by 5 in Hyderabad, 3 in MMR and 1 in Chennai.

The market size of tier 2 and tier 3 cities is expected to grow from the current $5.7 billion to $80 billion by 2026. India’s tier 2 and tier 3 cities are 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.

Tech-driven aspects like Artificial Intelligence (AI), data analytics, geo tagging, omni-channel shopping networks, etc 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-pick-up-offline facilities - anything else that adds to the ease and enjoyment of the shopping experience – will be winning tickets for mall owners.