Bengaluru, Hyderabad lead retail supply in Q4 of CY2023; high streets in demand: Report

Annually, the prominent high streets across India have grown 9-12 percent, with some growing by 15-18 percent, on average.

The last quarter of CY2023 saw one of the largest supplies of retail space since the pandemic, totalling 5.9 million square feet (msf) across top eight cities, with Bengaluru and Hyderabad leading the way, according to a report by real-estate consultant Cushman and Wakefield.

Mumbai, Delhi NCR, Kolkata, Bengaluru, Chennai, Hyderabad, Ahmedabad and Pune are the cities.

According to the report, Q4 recorded the addition of 3.1 msf of Grade A malls, with Bengaluru and Hyderabad leading, with 1.2 msf and 1.02 msf, respectively.

Grade A malls are those with over 5 lakh sq ft of gross leasable area (GLA), and enjoy relatively steady foot traffic.

In 2023, Mumbai saw an addition of 0.48 msf of retail supply, Delhi recorded 0.22 msf and Pune, 1.43 msf.

The report said that, in Q4 of CY2023, the rentals for high streets across metro cities like Bengaluru and Pune have breached pre-pandemic levels, with appreciations as high as 20 percent YoY.

High street refers to the primary business centre in a town or city.

Prominent high street rentals, which witnessed a rise over the last 4-6 quarters, continue to see upward movement across most markets.

Overall, the retail space leasing volume across most of the top eight cities was led by high streets, indicating a lack of space in Grade A malls.

As a result, high streets such as Khan Market (New Delhi), Linking Rd. (Mumbai), Galleria Market (Gurgaon), Banjara Hills (Hyderabad), Adyar (Chennai) and many others saw rents nearing or even breaching the pre-Covid levels sometime earlier in 2023.

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"In some of the prominent high streets in Bengaluru, like 100 Feet Road in Indiranagar, we see the rentals at Rs 300-350 per sq ft. Several retail malls in the city have not yet touched the same appreciation," Saurabh Shatdal, Managing Director, Capital Markets and Head of Retail, India told Moneycontrol.

However, Shatdal added that, post-Covid, the percentage of rental appreciation has been unprecedented. For example, Indiranagar's 100 Feet Road saw a rental appreciation of 20 percent YoY in 2023, followed by 80 Feet Road in Koramangala with 14 percent.

Ahmedabad comes next in rental growth with CG Road and Prahladnagar commanding 19 percent YoY movements in rents.

High streets in Mumbai and Delhi NCR, however, saw a lower rental growth between 9-11 percent and 3-5 percent, respectively.

Annually, the prominent high streets across India have grown 9-12 percent, with some growing by 15-18 percent, on average.

"A demand-supply mismatch has been one of the reasons why we see the rentals in high streets moving upwards, catching up with retail space in malls. While every retail mall will occupy around 1 msf in a city, comparatively, the total area of high streets in the city will be much smaller than that. And thus, a crunch in space with high demand pushes the rentals upwards in high streets, especially with sizes of vanilla stores going up every year due to increased demand from offline consumers," Shatdal added.

Additionally, most retail spaces in malls have a higher lock-in period of about 3-5 years. Thus, it becomes more difficult for mall owners to raise rentals. High street rentals have shorter lease terms, and thus have more potential to churn the rentals annually.

"For example, in Bengaluru's HSR Layout, the rentals have already grown by 18-20 percent in the last year, and we anticipate further growth in 2024," Shatdal said.