K-shaped recovery keeping retail real estate on its toes, say experts

Consumption by a wider section of society needed, they say

Demand for retail real estate is growing but companies in the sector believe that is largely the result of a K-shaped economic recovery and they want consumption to widen, according to experts.

The demand for retail real estate in India’s top eight cities last year touched a record high of 7.1 million square feet (sq ft), 47 per cent higher than in 2022, according to data shared by CBRE, a real estate consultancy.

Such demand is building up alongside several global luxury brands, including Maison Margiela, Dockers and Balenciaga, entering the Indian market since Covid-19 hit the country early 2020.

However, a recent note by Morgan Stanley said that though private consumption expenditure improved in India from 1.5 per cent in the January-March quarter last year to 4 per cent this year, it trails the 2019 average of 6.3 per cent.

Organised retail, which accounts for about 12-13 per cent of private consumption, grew by around 15-16 per cent in FY24 to outpace the single-digit growth of private consumption, according to CRISIL, a ratings and economic research firm.

Experts say this dichotomy shows the K-shaped economic recovery after Covid-19.

"It is a K-shaped recovery, and the bottom of the pyramid has yet to pick up momentum," said Prashant Thakur, regional director and head – research at Anarock Group.

According to Aniket Dani, director at CRISIL Market Intelligence and Analytics, the growth in rural demand remains slow.

"The growth in retail real estate demand, which indeed suggests a K-shaped recovery, is primarily driven by urban consumption (leading to growth in the organised retail segment), while rural growth remains tepid."

The lower income stratum "continues to be affected by the pandemic" but the luxury buyer segment "is going strong", said Thakur.

Sharad Nagpal, head of retail consulting, India, at JLL, disagreed and said that all segments including "value" and "super value" have recorded "substantial increase in their store footprint and revenues in the last five years".

High retail growth is more due to the "rapidly growing middle class, frequent global travel, exposure to social media platforms across socio-economic demographics".

Experts said that the government needs to introduce measures to improve consumption.

"For overall growth in the retail segment, recovery of private consumption across income levels, including the lower income groups, needs to be revived," said Thakur, adding the Union Budget later this month may offer benefits and concessions by way of lower taxes, particularly for the middle class.

"Giving relief to individual taxpayers will also help increase the monthly disposable income of people and in turn boost consumption," he said.

"Reductions in GST rates, targeted financial assistance, and measures to improve consumer sentiment can help accelerate the recovery," said Nagpal, referring to the Goods and Services Tax.

Retail real estate growth is likely to stay moderate in the coming quarters, marked by the plans of listed players.

Titan, the jewel and watch company owned by the Tata group, opened 239 stores between April and December in 2023 compared to 359 in the same period in 2022. For Reliance Retail, the tally fell from 2,376 to 1,276 stores.

Retail leasing is likely to fall to 6-6.5 million sq ft in 2024 down from 7.1 million sq ft last year, according to CBRE.

"Retailers may maintain a cautious approach with their expansion plans as pent-up demand wanes and potential inflation squeezes consumer spending," said Anshuman Magazine, chairman and chief executive officer - India, South-East Asia, Middle East & Africa, CBRE.

"If the monsoon remains good and the Budget offers some consumption boosters, we can expect overall consumption to pick up – and this will benefit the retail real estate sector, as well," said Thakur.