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India’s Retail Realty Market Gears Up for 50% Growth by 2028. Can it Bridge the Consumption Gap?

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India's Retail Realty Market Gears Up for 50% Growth by 2028. Can it Bridge the Consumption Gap?

India’s retail realty sector presents a fascinating picture—a tale of two cities, or perhaps more accurately, two income levels. On one hand, there’s a surge in demand for retail real estate, with a record-breaking 7.1 million square feet absorbed in 2023 across major cities. This boom has even attracted global luxury brands like Maison Margiela and Balenciaga to set up shop in India.

However, a closer look reveals a hidden story. Private consumption expenditure, a key indicator of overall spending, remains sluggish compared to pre-pandemic levels. While it has improved to 4% in the first quarter of 2024, it still falls short of the 2019 average of 6.3%.

This disconnect suggests a K-shaped recovery, with urban consumption driving the growth of organized retail (15-16% growth in 2023-24, according to CRISIL) while rural demand lags. The CBRE Research Report numbers speak volumes.

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Source: CBRE

Retail Realty: A Magnet for Investors

India’s retail sector is proving to be a goldmine for investors. The current retail space of 89 million sq ft is poised for a massive 50% jump to 134 million sq ft by the end of 2028. This growth isn’t going unnoticed by major foreign institutional investors, who are increasingly drawn to the potential of the market.

These investors are particularly interested in development projects in greenfield (undeveloped land) and brownfield (existing infrastructure). In fact, these institutional players will own a significant chunk (16% or 7.2 million sq ft) of the new retail space, highlighting their confidence in the sector’s future.

Retail Realty Edging To A K-Shaped Recovery

Experts point to this disparity as evidence of the uneven recovery. The growth in retail realty is fueled by urban spending, particularly the growing middle class with increased disposable income. It translates to a rise in organized retail catering to this segment. Meanwhile, rural demand, crucial for overall economic well-being, remains tepid.

Factors Driving the Growth

“The growth is driven by urban consumption, while rural growth remains slow,” explains a retail analyst.

  • Uneven Recovery: While luxury retail booms, lower-income groups hit by the pandemic haven’t seen a significant spending rebound, highlighting a K-shaped recovery.
  • Thriving Value Segment: Interestingly, budget-friendly “value” and “super value” stores have also grown their footprint and revenue in recent years.
  • Middle-Class Momentum: India’s rapidly expanding middle class with rising disposable income is a key driver of retail growth.
  • Global Exposure: Increased travel and exposure to international brands influence consumer preferences and drive demand for specific products.
  • Social Media Savvy: Social media platforms are fueling trends and product awareness across various demographics, impacting buying decisions.

Boosting Consumption: A Call for Policy Action

Experts believe boosting overall consumption, particularly among lower-income groups, is essential for sustained growth in the retail sector. Measures like middle-class tax cuts and targeted financial assistance could help increase disposable income and stimulate spending. Additionally, reducing GST rates and improving consumer sentiment can accelerate recovery.

A Cautious Expansion Ahead?

The initial euphoria of pent-up demand might be waning. With potential inflation squeezing consumer spending, retailers are likely to adopt a cautious approach to expansion. This is already evident with leading players like Titan and Reliance Retail opening fewer stores in the past year compared to the previous one (Titan: 359 vs 239 stores, Reliance: 2376 vs 1276 stores).

The upcoming monsoon season and the government’s upcoming budget are also factors to watch. A good monsoon and budget measures that boost consumption could positively impact the retail sector, including real estate.

Leasing Hit a Speed Bump in Q1 2024

CBRE predicts retail leasing activity to fall moderately in 2024, reaching 6-6.5 million sq ft compared to 7.1 million sq ft in 2023. Retailers might remain conservative with expansion plans as they navigate potential inflation and changing consumer behavior.

While the first quarter of 2024 saw a slowdown in leasing activity thanks to a temporary shortage of available space, experts remain optimistic. The coming quarters are expected to see a rebound in space take-up, fueled by a wave of new, high-quality developments and a healthy mix of established and emerging brands looking to expand. 

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Source: CBRE

Leasing activity dipped 23% year-over-year compared to Q1 2023. Interestingly, three cities—Bangalore, Pune, and Delhi-NCR—took a combined 52% share of all leasing activity in Q1 2024. However, there was also a notable 44% decrease in space take-up compared to the previous quarter.

Beyond Bricks and Mortar

The Indian retail landscape is evolving beyond just physical spaces. Recognizing the changing preferences of modern shoppers seeking unique experiences, developers are increasingly focusing on larger retail centers.

The top seven Indian cities are expected to see a 45 million sq ft surge of retail realty spread across 88 new developments. This ambitious plan dwarfs the previous decade’s 38 million sq ft supply. Notably, a significant portion (16%) of this new space will be owned by institutional investors, highlighting the sector’s attractiveness.

Retail Realty Developers Favor Lease-Based Model 

Interestingly, most of this new development will be lease-based (78% of new supply), allowing developers greater control over tenant selection and property management. This approach enables retail realty businesses to curate diverse tenant mixes that cater to evolving consumer preferences. 

The era of strata sales, which contributed to the downfall of many non-performing malls, seems to be over. Developers are now opting for long-term ownership and operations to ensure better performance and decision-making.

The Rise of Mega-Malls as Experience Hubs

The average size of new retail realty spaces is expected to rise by 30% and reach 507,341 sq ft, signifying a shift towards larger experience-driven destinations. These developments will likely incorporate entertainment, leisure activities, and dining options alongside retail stores, creating one-stop destinations for modern consumers increasingly influenced by global trends and seeking immersive experiences.

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Source: CBRE

D2C Brands Embrace Physical Stores

The lines between online and offline retail are blurring. Recognizing the importance of a physical presence to complement their online success, a growing number of Direct-to-Consumer (D2C) brands are establishing brick-and-mortar stores. This move allows retail realty businesses to offer customers a seamless “phygital” shopping experience, combining the convenience of online browsing with the tangibility and personal interaction of physical stores.

A Win-Win Collaboration

Savvy retail realty developers are taking note. They’re keeping a close eye on D2C brands with strong online customer bases and actively exploring opportunities to collaborate and bring these brands into their shopping centers. This trend creates a win-win situation: D2C brands gain valuable physical touchpoints to connect with customers, while developers attract new tenants and cater to evolving consumer preferences.

Delhi NCR is expected to lead the surge in new retail space, capturing a 43% share in the next five years. Hyderabad and Chennai follow closely with 21% and 13% shares, respectively.


India’s retail realty market presents a unique scenario. While the sector is witnessing significant growth in organized retail and larger experience-driven spaces, a significant portion of the population remains on the sidelines. The success of the sector in the coming years will depend on various factors, including rural demand revival, government initiatives stimulating consumption, and the effectiveness of planned retail developments in attracting consumers.

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I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.

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