JLL: Retail Real Estate Awaiting An Upswing

Macro Economy Has Been Non-Conducive For The Retail Sector

Over the last 6-8 quarters, the retail sector in India has been subject to immense pressures from a slowing economy, stagnancy in jobs and incomes, and lack of stimulus from government policies. More recently, Indias quarterly GDP consistently fell short of the 5.0% y/y growth mark, which was the average growth recorded for the last financial year FY2012-13. For FY2013-14, the economic growth rate is expected to come in at less than that observed in the previous year.

Private consumption expenditure, which is a critical component accounting for over 60% of Indias GDP, saw a growth slump, recording not more than 3.0% y/y growth in the recent four quarters. Lack of confidence among the consuming class due to compromised job prospects and income growth has led a rising proportion of income going towards secure savings rather than consumption spending. High inflation and borrowing rates further derailed hopes of an early recovery. Moderated consumption spending and high inflation has had a direct impact on the retail sector, whose growth momentum has been falling sharply.

Lack Of Policy Stimulus & Demand-Centric Mall Development

Mall space absorption continued to remain weak in 2013 from the low levels observed in 2012 across the leading seven cities of India. Factors that were responsible were a poor policy framework and the lack of new mall construction. In the last 6-8 quarters, retail has been subject to difficulties on the policy front, as progress on retail sector FDI hung in the balance. While the ruling government was in favour of liberal reforms in FDI policy, stiff opposition from other political parties gave foreign retailers reason to remain cautious. Also, with the upcoming elections threatening to overthrow the current ruling alliance, withholding investment decisions retailers was probably the best option available to retailers at this time.

While the external environment plays a huge role in demand for retail space, supply is an important consideration too. Premium fashion brands that enter India have had difficulties in finding quality mall space. Major Tier-I cities of Delhi-NCR, Mumbai and Bangalore witnessed a fall in supply of quality malls as developers responded to the current situation by holding on to project completions. Retailers responded by either looking for spaces in quality high streets or by delaying entry completely.

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JLL: Retail Real Estate Awaiting An Upswing