Delhi NCR has always been the flag bearer of retail leasing in India and the situation remains pretty much the same. It accounts for 25% of the total leased space during this period, ahead of Mumbai’s 13% and Bengaluru’s 12%. The retail rental rate growth in certain pockets of Delhi-NCR has been impressive and is expected to gain momentum further. People are back to shopping malls and opening their wallets there, with consequent bold advancements by brands. The fact that fashion and apparel retailers have driven the retail leasing activity with 46% share of total retail space leasing in Q3, is heartening.
The last decade in the Indian retail leasing sector has seen many changes. While the supply of Grade A retail spaces restricted brands to splurge initially, an over-supply coupled with dwindling requirements defined the later phase. Covid 19 appeared to be the proverbial last nail in the coffin of Indian retail leasing. However, as the country opened up and restrictions were lifted, the retail leasing sector started showing early signs of revival. By Q3, 2022, the retail spaces leased were more than double of new supplies of the same.
However, there are a few noticeable trends which are quite visible in this space. The retail sector is undergoing rapid evolution, and concomitant with that there are requirements for new products, services and thematic shopping malls. Accordingly, retail real estate developments are organising themselves to keep pace with the changing consumer needs and demands of the tenants. They are upgrading themselves regularly in terms of tenant mix, facilities and value added services. Retail space developers as well market associations have also realised the importance of offering differentiated environment and value added services and therefore are innovating in order to attract footfalls.
Shopping malls and retail spaces have now become holistic entertainment and social destinations as much as they remain the shopping destinations. Therefore, a defining characteristic of this retail revolution is the emergence of new leasing trends in order to cater to the requirements of innovative ideas that the brands have. This could mean creating space for a flea market inside the mall premises or offering an outwardly ambience to a coffee shop. In some cases it could just spell out a logistics arrangement to take care of huge traffic of home delivery aggregators for a popular eatery.
Another significant trend that is changing the dimension of retail space leasing in India is the emergence of leading global retailers as anchor stores. While traditionally the anchor stores were departmental stores, now an apparel retailer or even an electronics retailer is accepted by mall owners to act like a magnet. This has created competition for securing quality space for previously established domestic retailers in the country. Fast Fashion brands such as Zara and H&M are performing quite well in India and are preferred by consumers as they provide the latest fashion and style and in turn attract significantly high spending youngsters. Indian brands like Shoppers stop are also upgrading their operations to compete and are therefore demanding new services from retail space owners.
As Indian corporates have been waking up to the immense potential of retailing, there are plans afoot from some of the largest Indian businesses like Reliance and Tata to increase their footprint as well as improve the customer experience. The sheer volume for retail leasing driven by just these corporate behemoths is expected to bring a paradigm shift. The recent expansion by Reliance digital and Croma is just a trailer and the way it has forced the traditional electronics retailers like Vijay sales and Pankaj electronics in Delhi-NCR market to take their game up, is the harbinger of good news for the retail leasing sector.
The rising popularity of e-tailers and the intense competition in the space is driving these players to use physical spaces creatively to attract more clicks online. Nykaa is a case in point and the early success of its model could exhort others to follow the same path. This could be the start of a new wave of premium retail space demand in India. While this is on, the efforts by established brick-and-mortar retailers to add the elements of e-tailing in their business model will force retail space owners to innovate in order to facilitate their logistics requirements. It is, therefore, no rhetoric to say that next few years in Indian retail leasing business will see fast growth and evolution of new models.
There has also been frequent churns witnessed in the shopping malls today and brands are changing addresses frequently, sometimes within the same mall or market. A lot of these are forcing retail space developers to embed new trends and retailing formats that are much in demand. Moreover, mall developers prefer the brands that can provide them higher revenue per square feet of space. Therefore the leasing process has become more systematic and structured in commercial real estate space and there has been continuous monitoring of the store performance by the mall developers. As a result, the contract period has also been shortened in the lease documents of the shopping malls so as to accommodate frequent churn and newer brands entering India.
Another interesting and positive development for retail spaces in Delhi is the increasing trend of customers from smaller towns to come here for shopping jaunts. Whether it is a marriage in the family or a vacation, small towners can be seen thronging the Delhi-NCR malls and spend good money. With issues around foreign visa and almost closure of Chinese markets, this trend has been observed by industry watchers. This is also resulting in new hotels being set up within the mall promises or closure to high-street retail areas.
There has also been an increasing emphasis on Environment, Social and Governance(ESG) concerns as more top global retailers set up stores in India. Delhi-NCR is already witnessing such requirements from retailers. More customers are expected to prefer sustainably managed brands, especially the ones focussed on reducing carbon emissions and waste. Going forward this is expected to be a key differentiator for top retailers to continue to be relevant to young and upwardly mobile consumers.
Physical retail spaces remain important for retailers and consumers alike and the role of stores is increasingly getting more nuanced. These emerging trends in retail leasing in Delhi-NCR are sure to impact the dynamics of leasing and management of these spaces.
ImpactR is a leading data-driven commercial leasing platform working with brands and property owners in the region, tracking the latest trends in commercial leasing and helping its partners adapt to those ahead of time.