Delhi – NCR, Hyderabad and Chennai to see highest supply in 2018.
Delhi-NCR, Hyderabad and Chennai are expected to see the highest mall supply in the next three years (2018 – 2020) touching 19.4 million square feet (msf). Demand will be approximately 15 msf during the same period, says a study by JLL India.
The total newly completed malls in 2017 was recorded at 5.6 msf which is expected to see an increment of close to 40 per cent year-on-year and rise to 7.8 msf by the end of 2018. The largest contribution to this will be coming from the two southern cities of Hyderabad (2.2 msf) and Chennai (1.5 msf) which will see significant influx of mall supply, it said.
Delhi – NCR will be witnessing the highest supply of 2.3 msf of new mall space in 2018, albeit recording a decline of 28 per cent year-on-year since 2017.
The steady growth of supply will be accompanied by an equally stable growth in demand which is also expected to be at around 15 msf in the period of 2018 – 2020, it said.
Despite an expected decline in Delhi – NCR, the city is expecting to see an addition of 2.3 msf of new mall space in 2018. Most of these malls will be in the peripheral regions and would be catering to the growing catchments of Noida, Gurgaon and Greater Gurgaon.
While Delhi – NCR already has the highest inventory, the growth of retail sector points out to the further possibilities of growth. In the same space, Mumbai which has in the past few years seen as slowdown in retail development activities will continue to witness remain cautious. 2018 will see a decline of 13 per cent year-on-year in new mall completions, further maintaining the status quo in the market, the report said.
Chennai will experience a surge in new completion mall spaces with over 1.5 msf of new malls being added. Chennai has seen extremely restrained development activities over the last few years, mostly due to strong preference by retailers for traditional high street locations. Hyderabad is the other major market to see significant growth adding 2.2 msf of new mall supply in 2018. This comes at the back that the city has not seen any new supply in the last year and has had a history of sporadic additions from time to time.
A parallel rationalisation of existing mall spaces is also expected. This will help the market avoid an oversupply situation. Also, a few malls may close down or temporarily suspend their operations for repairs, renovation and upgrades. This will help the market create the necessary balance to maintain the rental values, says the report.
While retail mall space has now started to see a rise in the market, we have also experienced some rationalisation in supply in the last year. 2017 saw withdrawal of nearly 5 msf of retail space with a closing down of 28 malls. Most of the rationalisation took place in the markets of Delhi – NCR and Mumbai owing to the fact that these markets have significant mall stocks with a considerable percentage of the same performing below par.
“The retail sector of India is going through a fresh period of growth which is backed by strong economic fundamentals. As we have seen an increase in interest from investors which was seen with investments of over US$ 750 mn in 2017. Encouraged by the urbanisation, young population and rising proportion of nuclear families in urban locations, over 70 per cent of consumption growth in the next 15 years is expected from population aged 15-59 years, with increased per capita consumption. This along with the opening up of the FDI route for retail brands entering into India, will further boost retail investments,” says Ramesh Nair, CEO and Country Head, JLL India.“Despite the onslaught of new retail formats like e-commerce, tele- marketing and others, we will continue to see a steady growth in brick and mortar form of retail as the sector is pegged to grow to INR 1 trillion by 2020, at a CAGR of approximately 15 per cent. We expect the opening up of FDI will be instrumental in achieving and surpassing these growth estimates,” added Nair.