Among the leading cities, Hyderabad, Delhi NCR, and Mumbai recorded the highest leasing volumes, collectively representing 70% of the leasing activity on main streets. The demand for retail space in these locations has pushed rental rates upward, particularly in Delhi NCR, Bengaluru, Chennai, and Kolkata, where rents surged by up to 15% year-over-year.

Rental Growth Across Prominent Main Streets

The report outlines the year-over-year rental growth across various prominent main streets:

• Delhi NCR: 13-15% increase
• Bengaluru: 12-14% increase
• Chennai: 12-14% increase
• Kolkata: 12-14% increase
• Mumbai MMR: 5-7% increase
• Pune: 1-3% increase
• Hyderabad: No significant change
• Ahmedabad: 8-10% increase

In contrast to the strong performance of main streets, retail leasing in malls has remained relatively subdued, constituting just 32% of the total leasing activity. The absence of new mall supply in Q3 2024, coupled with tightening vacancy rates in existing Grade-A malls, has contributed to a more cautious leasing outlook in the mall segment.

Tightening Mall Vacancies

Across major cities, Grade-A mall vacancy rates have continued to tighten, driven by increasing demand, especially from international brands. Foreign brands now account for nearly 30% of leasing activity in malls for the year-to-date period in 2024.

In Q3 2024, the following cities saw the most significant declines in Grade-A mall vacancies:

• Mumbai MMR: 0.89%, down by 18 basis points
• Delhi NCR: 13.91%, down by 33 basis points
• Bengaluru: 5.35%, down by 213 basis points
• Pune: 6.49%, down by 125 basis points
• Hyderabad: 1.50%, down by 137 basis points
• Chennai: 1.74%, down by 17 basis points
• Kolkata: 2.69% (no change)
• Ahmedabad: 11.75%, down by 122 basis points

With vacancy rates tightening in Grade-A malls, demand from international retailers remains high. Notably, foreign brands represented approximately 15% of the overall leasing volume in 2024.

Projected Supply and Leasing Activity

Looking ahead to Q4 2024, approximately 1.8 million square feet of Grade-A malls are set to open, primarily in Mumbai, Delhi NCR, and Pune, providing new opportunities for retailers. This upcoming supply is expected to help alleviate the tightening vacancy rates, though the demand-supply imbalance may persist for some time.

Regional Market Highlights

• Delhi NCR: Retail leasing activity reached 0.3 million square feet in Q3, with Gurugram leading the charge, accounting for 44% of the leasing volume. Main street rentals in Galleria Market in Gurugram saw a remarkable 20% growth both quarter-over-quarter and year-over-year. In Khan Market, rentals also jumped 7% during the same period.
• Mumbai: The city’s retail sector saw leasing volumes of 0.16 million square feet in Q3, a 76% increase from the previous year. Prominent suburban malls accounted for the majority of this activity, contributing 64% of the total leasing volume.
• Bengaluru: With 0.2 million square feet of retail leasing in Q3, Bengaluru recorded a 10% year-over-year growth. Main street leasing contributed 56% of the total leasing volume, with notable growth seen in high-street locations.
• Chennai: Main street leasing in Chennai surged by 28% quarter-on-quarter and 57% year-over-year. However, leasing in malls was limited, reflecting the lack of quality space in the market. Main street rentals in areas like Anna Nagar and Pondy Bazaar saw a strong 8-12% increase.
• Hyderabad: Retail leasing activity reached 0.49 million square feet, up 22.3% year-over-year. Main street rents rose by up to 10%, particularly in key areas like M.G. Road and Abids. The city’s Grade-A mall vacancy rate dropped to just 1.5%.
• Kolkata: Main streets continued to lead retail leasing activity, with limited Grade-A mall supply contributing to the ongoing demand. The overall vacancy rate in malls remained stable at 6.8% quarter-over-quarter.
• Pune: Retail leasing in Pune grew significantly in Q3, with mall leasing volumes increasing 85% from the previous quarter. Main street leasing saw a remarkable 104% jump quarter-over-quarter, particularly in established areas like NIBM Road.
• Ahmedabad: Retail leasing in Ahmedabad remained steady, with main street leasing totaling approximately 59,900 square feet. Malls saw a slight decline in leasing activity, though vacancy rates continued to tighten.

Future Outlook

Despite the slower leasing activity in malls during Q3 2024, the outlook for Q4 remains positive, with a significant influx of new Grade-A mall supply expected. This should help meet the growing demand for retail space, particularly from high-end international brands and expanding domestic retailers.

Saurabh Shatdal, Head of Retail and Managing Director, Capital Markets at Cushman & Wakefield, commented on the findings: “The Indian retail sector is evolving rapidly, with main streets driving high leasing due to limited mall supply. While malls saw a quieter quarter, we expect this gap to be addressed in Q4 with a strong influx of new Grade-A spaces. The evolving lifestyles of Indian consumers, especially in fashion, food & beverage, and accessories, are also playing a pivotal role in shaping retail leasing trends.”

As the retail landscape continues to evolve, Cushman & Wakefield’s latest report underscores the ongoing growth of India’s main streets, alongside a promising supply pipeline that will help meet the growing demand for premium retail spaces across key urban markets.

Also Read: Indian retail sector booms: 5.3 million sq. ft leased in top 7 cities during first 9 months (Jan-Sept) of 2024

The post Main Streets Lead Retail Leasing Growth in Q3 2024; Rentals Surge Amid Tightening Vacancies appeared first on Square Feat India.

Growing Demand for Premium Retail Spaces

The report highlights the burgeoning appetite for premium retail spaces as consumer spending shifts toward discretionary items and experiential retail. In urban India, spending on discretionary goods has risen from 27% in FY2011-12 to nearly one-third in FY2022-23, indicating a marked increase in consumer confidence. Concurrently, expenditures on essentials have seen a decline. Categories such as food delivery, travel, and premium consumer durables are witnessing significant growth, further fueling demand for high-quality retail environments.

International Brands Targeting India

Cushman & Wakefield’s report also underscores the increasing appeal of the Indian market to international retailers. The AT Kearney Global Retail Development Index 2023 suggests a high urgency for global brands to enter and expand in India, bolstered by economic growth, rising incomes, supportive government initiatives, a robust digital payment ecosystem, and improved infrastructure. The influx of international brands has surged from an average of 12 annually before the pandemic to 25 in 2024, enhancing the demand for premium retail spaces.

Urgent Need for Quality Retail Development

Despite rising demand, the report points out that the pace of Grade-A mall developments has been sluggish. Over the past eight years, only 20 MSF of Grade-A mall space has been added, averaging just 2.5 MSF per year. Alarmingly, no new mall supply entered the market in the first half of 2024. Currently, India’s total Grade-A mall inventory stands at 61 MSF across its top eight cities, resulting in a mere 0.5 square feet of RSPC—significantly lower than countries like Indonesia, the Philippines, and Vietnam.

To reach a more competitive RSPC of 1.0 by 2027, India will need to construct 55 million square feet of new mall space, according to the report. The projected pipeline of Grade-A retail mall projects through 2027 totals just 18 MSF, highlighting a critical gap that developers must address.

High Streets and Office-Retail Complexes on the Rise

The report also notes the growing prominence of office-retail complexes (ORCs) and high streets as viable alternatives due to the limited availability of Grade-A mall spaces in major cities. Over the last 7-8 years, more than 70 ORC projects have been completed, successfully attracting quality retail tenants and leading to peak rental premiums. Notably, rental rates in prime high street locations have exceeded pre-COVID levels.

Conclusion

Saurabh Shatdal, Managing Director of Capital Markets and Head of Retail at Cushman & Wakefield, emphasized the critical moment facing India’s retail sector. “The rising consumer confidence and increased discretionary spending indicate the sector’s potential. To capitalize on this growth, addressing supply-side challenges and ensuring the availability of quality retail spaces is imperative,” he stated. “The addition of 55 million square feet of Grade-A retail space is crucial for meeting the demands of this dynamic market.”

As India’s economy continues to expand, the call for concerted efforts among industry stakeholders becomes more pressing to unlock the full potential of the retail sector.

Also Read: Indoor Amusement Centers Transforming India’s Retail Landscape: JLL Report

The post India’s Retail Sector Poised for Expansion: 55 Million Square Feet of Grade-A Malls Needed by 2027 appeared first on Square Feat India.