Retail firms struggle to find quality real estate

Several major retailers have attributed their post-covid expansion plans to make up for the slower pace of growth in 2020 and 2021. Now, with improved mobility and return of consumers to physical outlets, the pace of real estate expansion has picked up, outpacing the available supply in the market.

Furthermore, the pandemic has caused delays in several large-scale retail projects, leading to a shortage of available properties. For instance, in 2022, retail absorption recorded a rise of nearly 4.7 million sq. ft over a year ago. In contrast, supply additions declined in 2022 from a year earlier, with only four malls covering approximately 1.4 million sq. ft. becoming operational in Bengaluru and Pune, according to data from CBRE.

“Retail demand (in India) across investment-grade malls, prominent high streets and standalone developments has grown since 2020," said Anshuman Magazine, chairman and chief executive, India, South-East Asia, the Middle East and Africa, CBRE.

Ambuj Narayan, the chief executive of Titan Co.’s ethnic wear brand Taneira, acknowledged the challenges posed by rising property rates and increased competition for space. Rental rates have been escalating, making it crucial to carefully select locations that align with the brand’s positioning, he said.

“Property rates and rentals are going up. During covid, we know the rates really crashed, but now, they’re also sort of reviving and there are a lot of brands who are on an expansion spree. So, we are looking only at malls where the footfall is good and caters to our clientele. We are very choosy about where we would like to cater. We’d like to focus more on the high street stores because it sort of justifies the range we have," Narayan said in an interview.

To be sure, real estate rentals had crashed following the pandemic-led movement restrictions in early 2020. Demand remained weak in the subsequent months as severe waves of covid gripped the country. But, with a gradual opening-up of the economy, large retailers such as Reliance Retail, Aditya Birla Fashion & Retail, and Devyani International, among several other direct-to-consumer brands, have stepped up offline expansion. Retail leasing activity in January-March was led by fashion and apparel companies, followed by homeware and department stores, food service, luxury and consumer electronics, according to CBRE South Asia Pvt. Ltd‘s India Market Monitor–Q1 2023 report published in May.

Devarajan Iyer, executive director and chief executive of fashion retailer Lifestyle, said there is a visible increase in capital expenditure by apparel retailers across realty, product development and manufacturing. This is leading to an uptick in rental activity by brands, he added.

“A lot of brands also take properties in high streets, and because a lot of those properties are already taken, there is very limited availability. Most of the leases are 10-20 years; there is no room in the metros, and especially in popular high streets. Even if it’s available, it’s very expensive."

Bengaluru-based restaurant chain California Burrito’s co-founder and CEO Bert Mueller said finding quality real estate is a ‘big challenge’ at present with expanding competition. “We opened a decent number of stores in 2020 and 2021, and getting real estate was pretty easy. This year, it is a lot more challenging," Mueller added.