Top seven Indian cities will add nearly 11 million square feet of mall space — the size of more than 145 football fields — in 2023, as developers rush to deliver new properties after a hiatus during the pandemic, according to a report.
The mall space addition in 2023 will be the highest ever for a year and more than the past three years combined, according to the report by property consultant Anarock and the Retailers Association of India.
By 2026, the cities of Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai Metropolitan Region, National Capital Region and Pune will add 25 million sq ft of space, to the existing stock of 51 million sq ft, the report said. Physical retail continues to gain prominence among Indian shoppers even as online retail continues to grow.
“We will continue to follow demand because we don’t want to slow down this virtuous cycle of growth, but we will keep recalibrating and evaluating it every quarter,” said Ashish Goenka, chief financial officer of Jubilant FoodWorks that operates Domino’s Pizza, Dunkin’ Donuts and Popeyes chains in India.
“There is no number to chase … I think the only thing we will be chasing is demand,” he said during the firm’s third-quarter earnings call.
The NCR and Hyderabad will account for nearly 46% of the total new upcoming supply, closely followed by Bengaluru at 19%, the report said.
Last calendar year, the top seven cities added more than 2.6 million sq ft of mall space, which was 27% more than the preceding year (2021).
“The development was impacted due to Covid, but it picked up pace after developers noticed a quick recovery in the retail segment. Most of the development will get completed in 2023 and there will be more area to lease for retailers,” said Pankaj Renjhen, chief operating officer of Anarock Retail.
Average rentals in malls rose nearly 15% in 2022 over the previous year, breaching the pre-pandemic levels.
Bengaluru registered the fastest on-year uptick in rentals of around 27% in 2022, followed by Kolkata at 20%.
“Despite high rentals, retailers prefer quality space instead of going to a grade-B place just to save on rental. With so much supply coming in, the retailers will also have the option to expand,” said Kumar Rajagopalan, chief executive of the Retailers Association of India.
The retail market size is expected to touch $2 trillion by 2032, growing from $690 billion in 2021, facilitating the organised retail sector to grow at a compounded annual rate of 25%, said Anarock Retail.
“Space addition is always a good thing for retailers, but it has to make sense on the margin front. So we will expand only where it’s profitable to open stores,” said Abhishek Bajpai, CEO at Apparel Group India that sells brands such as Aldo, Charles & Keith and Bath & Body Works.
Retail businesses posted higher sales in December compared with the pre- pandemic December 2019, with East India recording an expansion of 20%, followed by South India (18%), West India (16%) and North India (10%).
While a few listed companies flagged slowing demand, especially after the festive season, malls said they were not seeing any slowdown in discretionary consumption yet.
“If you look at the categories specifically, jewellery is at 142% growth. It is on account of perhaps the wedding season being an extended period, but if you look at the other categories of discretionary spend, whether it’s F&B or fashion and accessories, electronics, they have all shown significant growth, even entertainment for that matter,” Shishir Shrivastava, managing director at Phoenix Mills, which operates more than half-dozen malls across multiple cities told investors after the December quarter.
The report said Indian retail real estate attracted around $1.47 billion of investment between 2019 and 2022. Of that, 76% came in 2019.
“The demand of quality retail is also there in tier-2 cities and many brands who operate in metro cities want to move to smaller cities,” said Uddhav Poddar, managing director of the Bhumika Group, which opened a mall at Udaipur.