Trends in Retail Property Development in India

India has witnessed a frenetic pace of retail development over the past five years. While local shopping centers have always exited in India, their structure, ambience and method of doing business served the needs of the local population. It would be perhaps incorrect to say that shopping malls have come into existence in India in the recent past. While they have always existed in the local and regional markets, the manner in which they now present themselves to the end consumer has changed. Spencer Plaza in Chennai and Crossroads in Mumbai are considered to have pioneered the shopping mall and shopertainment revolution in India. From three malls in the year 2000, to almost 300 malls by the year 2010, the pace of development is rapid.

The real estate action is no longer limited to the large metropolises of India, but has now permeated to the burgeoning smaller towns and cities. The upswing of the Indian real estate sector has been an outcome of a number of positive micro and macro factors. The consistent and sustained GDP growth, an expanding service sector, rising purchasing power and affluence and proactive and changing government policies have all lent momentum to this rapidly growing sector. Rising consumerism has created demand for new retailing and entertainment avenues. Realizing that consumers across cities have similar needs, albeit the variations in scale, new age retailers are vying to cash in on the first mover advantage an are expanding into hitherto unexplored smaller cities.

The current growth trends in Indian retail market present large prospects in the retail real estate segment. Indian retail enjoys the status of representing one of the 10 largest retail markets in the world. If the progress forecasted for retail sector in India keeps moving like this, then, by the end of 2008, approximately 66 million sq ft of new retail space is developed in the eight largest Indian cities.

Retailers would have to consider similarities across regions to pace their expansion for this purpose, it is necessary that some kind of classification of the cities, towns and regions is taken into consideration.

According to the Indian National Census, conducted in 2001, India comprises of 5,161 cities and towns in 35 states and union territories and almost 600 districts the country. These cities and towns can be grouped together on the basis of the population. The classification is indicated in Figure given below:

Tier 1: Major Cities
8 cities population > 4 million
Total income. 100 billion Indian rupees
Mumbai, Kolkata, Delhi, Chennai, Bangalore, Hyderabad , Ahmedabad, Pune.

Tier 2: Mainstream cities
26 cities population > 1 million
Surat, Kanpur, Nagpur, Lucknow, Jaipur, Kochi, etc

Tier 3: Climbers
33cities population > 500,000
Tiruchapalli, Amritsar, Faridabad, Aurangabad, Allahabad, Gwalior etc.

Tier4: Small Towns
5,094 towns
Rohtak, Rourkela, Udaipur, Anand, Hassan Shimla etc.

On the basis of the classification indication above retail opportunity is available to retailers in various towns and cities. It is interesting to note that The Geography of Opportunity – The India 50’, a paper presented by Jones Lang LaSalle Meghraj’s research highlights that India’s retail sector is evolving at a swift pace, fuelled by a strong economy, favorable demographics rising wealth levels and rapidly changing lifestyles and consumer aspirations of an ever burgeoning middle class. The real estate sector has responded well to this retail growth. The total retail mall stock has been doubling every year, from a meager one million square feet in 2002 to a staggering 40 million square feet by the end of 2007 and an estimated 60 million square feet by the end of 2008.

Firstly one needs to understand that parts of Indian cities are much older than many Western cities. Most cities in India have also witnessed and continue to witness unplanned growth. An interesting feature of most Indian cities is the presence of wholesale and retail markets. Another interesting feature of retail space development in India is the development of specialty malls.

Retail malls are likely to be the prime drivers of the organized retailing revolution in the country. Due to poor town planning, unplanned market places, with an erratic mix of shops and inadequate parking facilities have emerged and thrived. High streets locations in India also have their owns share of problems like lack of maintenance of common areas, encumbrances on property, absence of single ownership and management, poor parking availability.