Knight Frank looks at the retail scenario in seven major Indian cities and analyses the market potential in these areas. In the first part of this report, we take a look at New Delhi and Mumbai At the beginning of the millenium, the annual growth rate of the Indian economy was below 5 per cent. As a result, private consumption expenditure and retail sales clocked an annual average growth rate of only 4 per cent and 4.8 per cent respectively during 2000-01 to 2002-03. However, the economy picked up from 2003 to 2008 and the average annual GDP growth rate was recorded at 8.9 per cent. Once the economy attained high momentum, the Indian retail trade witnessed robust growth of around 11 per cent during this period. The upsurge witnessed during 2003 to 2007 was contained during the last two years because of the economic meltdown. Of late, signs of economic recovery have been observed, and this is likely to put the retail trade in India on a reasonably high growth trajectory again. Coverage and Approach The geographical coverage of this study is restricted to the top seven cities of Mumbai, NCR, Bangalore, Kolkata, Chennai, Hyderabad and Pune. Knight Frank research undertook an in-depth primary survey of all the major operational and upcoming malls and two prominent ëhigh streets' in each of these seven cities in February and March 2010. This article will take a look at the findings and results for the two major cities in India' NCR and Mumbai. To procure store-level data wherever necessary, sample stores in malls and high streets were identified and surveyed keeping in mind the different product categories and shop locations. The information collected from the primary survey has been presented at the micromarket or zone level.
 Indian Retail Market The retail sector in India is highly fragmented and mainly consists of owner-run ëmom and pop' outlets. The entire sector is dominated by small retailers' local kirana shops, general stores, footwear and apparel shops, hand-cart hawkers and pavement vendors. These together form the 'unorganised retail' segment or 'traditional retail'. According to Investment Commission of India (ICI) estimates, there are over 15 million such retail outlets in the country. In terms of total sales, one can find a wide range of estimates and this definitely reflects a lack of sound official government data. ICI estimated Indian retail sales figure at $262 billion for 2006, although market estimates ranged from $200 billion to as high as $386 billion for that year. Various agencies have made efforts to project the growth rate of the total retail market till 2013 and the figures hover at around 13-15.5 per cent. With partial relaxation of FDI norms pertaining to retail, the modern retail market is expected to grow at a healthy rate. There has been creeping globalisation of retailing in the recent past. As home markets become crowded, modern retailers from developed countries are turning to emerging markets like India. The projected annual growth rate of this segment of the retail market till 2013 is slated to be over 30 per cent. As a result, its share in total retail market is expected to be around 11 per cent by 2013. On the flip side, concerns have been raised that the growth of modern retail will have an adverse impact on retailers in the unorganised sector. However, a recent study (2008) undertaken by the Indian Council for Research on International Economic Relations (ICRIER) and commissioned by the Department of Industrial Promotion and Policy (DIPP), Ministry of Commerce & Industry, Government of India, has shown that there would be a positive sum game in the retail sector in India when both organised and unorganised retail segments not only coexist but also grow substantially in size.
Dynamics of Organised Retailing The economic meltdown of 2008 and 2009 brought in some important alterations in the organised retail market in India. During the boom period, prior to the downturn, the outlook for this sector exuded confidence. Many developers announced forays into mall development, and the penetration of modern retail was expected to grow at a phenomenal rate. However, as a result of the economic slowdown in the last couple of years, bullish sentiments have given way to a much needed cautious and consolidative approach among developers and retailers. Lease rentals have been renegotiated and a substantial correction in the rental rates has taken place. Mumbai witnessed an average rental correction of 15ñ20 per cent from Q1 2008 to Q4 2009, while the average correction in Bangalore and the NCR was more than 25 per cent during the same period. Apart from rental corrections, various lease rental models have evolved as corollaries to the coping strategies adopted by the stakeholders of organised retailing during 2008 and 2009. Zero-rental schemes and revenue-sharing models are options that are proving increasingly attractive to retailers looking to trim costs, as well as to property owners seeking to maintain occupancies. Revenue-sharing models are based on the premise that rent paid is linked to store performance. Some retailers are also attempting to negotiate a combination of zero rentals and revenuesharing agreements, whereby a period of zero rentals will be followed by revenue sharing for a fixed durationóuntil sales volumes begin to rise again. Another variant that is increasingly gaining importance is revenue sharing with a minimum guarantee from the retailer. In addition to the short-term measure of renegotiating rent, retailers are also looking at longterm initiatives in order to trim costs and diversify risk. Certain national brands have started exploring relatively untapped or growing segments in order to diversify their range of products. Consolidation of operations by reducing the number of outlets is another strategy adopted by several retailers to beat the adverse consequences of oversupply created during the boom time.
National Capital Region (NCR) The National Capital Region comprises six major zones, namely, the National Capital Territory of Delhi, the industrial hubs of Faridabad and Ghaziabad, the peripheral cosmopolitan zones Gurgaon and Noida and the newly-emerging micro-market of Greater Noida. The region is the oldest retail hub in northern India and boasts some of the most sought after shopping destinations in the country. Although the last few years witnessed the emergence of new markets like Chandigarh, Ludhiana and Jalandhar, the NCR still continues to account for the highest market share in retail spending in the entire northern belt.
During the last decade, the NCRís retail sector witnessed substantial growth. Historically, the retail market of the region was concentrated in Delhi and dominated by major high streets like Connaught Place, South Extension, Lajpat Nagar, Sarojini Nagar, Defence Colony and Greater Kailash. Over the last five or six years, as the high streets continue to have a sizeable share of retail spending, various newer organised formats have emerged in the region. Buyers in the NCR have adapted to the new-age shopping format of clubbing retail spaces and a multiplex under the same roof. The concept of organised retail emerged in the region with properties like the Ansal Plaza at Khel Gaon Marg, The Centrestage at Noida, DLFís City Center and MGFís Metropolitan in Gurgaon, which became operational from 2002-04.  Since its inception, developers in the NCR have been striving to improvise retail formats to make shopping a convenient experience, based on the consumerís lifestyle. Newer formats like retail clubbed with multiplexes and offices, as well as retail-cum-multiplexes clubbed with hotels have emerged in the region. Projects like the Ambience Mall in Gurgaon, Select City Walk and DLF Courtyard at Saket are formats that have dedicated star-category hospitality spaces alongside the mall. On the other hand, Unitech Group's Metro Walk in Rohini and Great India Place in Noida are retail formats with exclusive amusement parks as a part of the projects. Such newer concepts have redefined the retail scenario within the region over the last few years. Malls like Ambience in Gurgaon and Great India Place, with over 1 million square feet of retail and entertainment space, are redefining mall formats in terms of the size of the mall. Of late, micro-markets like Saket and Vasant Kunj in Delhi are also emerging as new organised retail hubs in the region. The advent of the organised mall format within the NCR made it possible for many international retailers and brands to venture into India and open stores in Delhi, Gurgaon and Noida. Foreign apparel brands like Guess, Esprit, Aldo, Tommy Hilfiger, Lladro and Nautica are posing stiff competition to local brands. The opening of DLF's Emporio Mall in Vasant Kunj, an exclusive mall for designer-wear, saw international brands like Armani, Gucci, Louis Vuitton, Christian Dior, Fendi, Cartier and Hugo Boss, as well as Indian designers like Tarun Tahiliani, Rohit Bal, Suneet Verma and Satya Paul competing under the same roof. The growth of the services sector and the continuous efforts of civic authorities to improve connectivity and infrastructure within the NCR have been the key factors driving the growth of organised retail spaces in the NCR. The Delhi Metro Project has contributed significantly towards the growth of the retail sector within the NCR. Connecting most of the major hubs within Delhi, the Metro has increased mobility for shoppers and has enhanced the catchment of malls located in zones linked to it. The Delhi Metro has recently been extended to Noida, which has substantially reduced the travel time from Delhi and thereby improved the retail prospects of Noida Sector 18, a prominent retail micro-market. As the South Delhi-Gurgaon link is due to be operational by the end of Q3 2010, the retail markets in both the locations are expected to witness greater consumer interest. In Gurgaon, specifically, this development is expected to have a positive impact on the organised retail formats operating out of MG Road. During the years 2008 and 2009, the global economic slowdown had an impact on the NCR's retail sector, leading to a decline in mall rentals. This also led to an increase in mall-level vacancies and a delay in the construction of new and planned projects. However, with the Indian economy showing positive signs of recovery during the last few quarters, the retail sector in the NCR has stabilised to some extent. At present, rental corrections have reduced, leasing activity in malls and high streets has picked up and construction activity across micro-markets has resumed, albeit on a cautious note.  Mumbai
Mumbai, the financial capital of the country, contributes around 5 per cent of the country's GDP. The city is home to important financial institutions like the Reserve Bank of India, the Bombay Stock Exchange and the National Stock Exchange. Besides being the entertainment capital of the country, the city has rich cosmopolitan demographics. These factors also ensure that the city remains foremost in terms of the real estate development. The region referred to as the Mumbai Metropolitan Region (MMR) covers the city of Thane and Navi Mumbai along with Mumbai city.
Mumbai, which houses the first mall in the country, Pyramyd Mall has a total organised retail stock of 8.72 million square feet and will see 11.26 million square feet of new retail development over the next three years. The city is home to some of the most successful malls in the country and the retail rentals here are amongst the most expensive in the world. While the size of the consumer market in the city is particularly large, the pace of retail real estate development has outgrown the organised retail business over the last four or five years. This situation, coupled with the global financial crisis in 2008, forced some retailers to curtail their expansion plans, putting other large retailers on the brink of bankruptcy. While the confidence of the retailers was shaken, the mall projects in the city were stalled due to poor liquidity. Retail and commercial projects of the city were on the negative list for institutional lenders, which made the situation worse for the commercial real estate segment. While the situation has improved since mid 2009, the retail space vacancy across the city still remains high. Many mall projects have been marred because of poor design as well as the high concentration of malls in a particular catchment area. Taking cognisance of the poor demand situation, some malls with high vacancy have started leasing space to office occupiers instead of waiting for retailers. Looking Ahead Certain aspects of the retail scenario in India are worthy of discussion here. For instance, the share of food items in the total retail is over 50 per cent, but in case of organised retail, it is a miniscule 1 per cent. This implies that a successful effort to increase the share of this category in the organised retail market will have a potentially large and positive bearing on the overall organised retail real estate space.
The projections for the development of upcoming retail space have been based on projects where ground breaking has been initiated. However, as witnessed in the past, the developers will take cognisance of the vacant stock and therefore the projected supply until 2012 may be deferred beyond this period. The projected oversupply may not be reflected in vacancy numbers in case retailers continue to conduct suboptimal business while occupying the space. In this case, the lower vacancy will come at the expense of business and therefore may not compare with the forecasted oversupply. The key indicators presented in the report indicate an oversupply situation in many cities, signifying that retail rentals will remain subdued in most of the markets. Courtesy-Knight Frank |
