“Malls are built for tomorrow, not today” – This is an interesting line I heard an industry veteran use during a panel discussion on Indian retail. This holds true presently, as developers are placing more emphasis on due diligence, in identifying locations to build malls that would be viable in the future. There is a gradual increase in interest towards emerging cities with immense market potential. Various stakeholders including developers are sensing an opportunity in these cities.

Indian retail scenario:
The Indian retail sector has evolved over the past two decades and has been growing at an exponential pace. India is one of the largest retail markets in the world, already with a burgeoning workforce. Prominent international retailers are entering the country and domestic ones are looking to expand their footprint in the country. A recent World Economic Forum report estimated that domestic consumption in the country, which constitutes 60% of the GDP, is expected to grow into a USD 6 trillion opportunity by 2030.

Growth in Tier I cities stabilizing:
Retail activity so far has largely been concentrated in the Tier I cities in the country. Retail has been thriving in these cities with a large number of malls having been built in the last two decades – a large chunk in metros such as Mumbai, Delhi and Bangalore. These cities now have some of the best malls in the country and top retailers across categories. However, the growth in these cities has stabilized recently. Existing marquee assets and other quality malls already have low vacancy rates and high rents. There are limited land parcels available for the construction of new malls. This presents an opportunity for Tier II and certain Tier III cities.

Potential for emerging cities:
The emerging cities in the country have large potential for growth. Factors such as a young population, an increase in discretionary spending, and bigger aspirations will have a positive impact on demand. The advent of e-commerce has played an important role in pushing people further up the learning curve in terms of awareness. While e-tailing will definitely be popular in these cities, there is no substitute for the experience that only bricks-and-mortar outlets can provide. Therein lies the opportunity for developers, as there are limited avenues to shop currently in these cities. Quality malls in emerging cities can become the central focus of the community.

Mid-segment brands to lead the pack:
Currently, there is an opportunity for retailers targeting mid-segment categories – brands such as Zara and H&M in the fast fashion category; department stores such as Shoppers Stop; quick service restaurants such as McDonalds and KFC; cinemas such as Cinepolis; electronic stores such as Reliance Digital and Croma; and certain apparel outlets. Many of these brands have already started expanding in emerging cities. For instance, Shoppers Stop has ventured into the north-east recently with its first flagship store in Guwahati.

Investors too sense an opportunity:
Recently, the amount of investment in emerging cities has been increasing as some of the biggest institutional investors in the country are recognising the potential of these cities. They are constantly on the lookout for attractive investment opportunities, with decent risk-adjusted returns. Some of the major deals signed in the last few years include:

Source: JLL Research

The future of the retail sector in emerging cities looks bright. The growth of the sector would be beneficial for the stakeholders involved – retailers, developers, investors and consumers.

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