Small Spaces, Big Demand: India's retail leasing shift

India's retail sector is changing fast due to the impact of macroeconomic factors, rapid urbanization, rising affluence, and evolving consumer preferences.  This dynamic environment has led to vibrant growth in retail leasing across the country.

With growing uncertainty in Western economies due to geopolitical crises, India has emerged as a preferred destination for global brands, owing to its status as the fastest-growing economy. Simultaneously, successful home-grown Indian brands are also expanding their offline presence.

 The evolution of shopping centers

Malls and shopping complexes are evolving into "centers of experience," blending dining, entertainment, and shopping. Retailers and brands are increasingly favoring large-scale developments that offer a holistic experience to customers. However, low vacancy rates in malls have led to retailers opting for smaller spaces, with nearly 76 per cent of total leases being for spaces up to 2,500 sq ft.

Apparel and accessories, major leasing driver

Apparel and accessories constitute a significant portion of retail leasing transactions. In the second half of 2023, they accounted for 36 per cent of the transactions, and this number increased to 40 per cent in the first half of 2024, and remained at 40 per cent in the second half of 2024

Table: Retail leasing transactions by categories (Comparison of last 3 cycles)

Source: Anarock

Anuj Kejriwal, CEO & MD, Retail, Industrial & Logistics Business (I&L) at ANAROCK, notes the leasing momentum evident in the past two years continues, with 2024 recording the continuity of the trend with over 6.5 million sq ft of leases across major cities, surpassing the supply of new stock significantly. This has led to a reduction in vacancy levels in malls to 7.8 per cent, causing rental values to increase.

Table: Top tenants (based on total area leased)

As the table above shows Lifestyle International is one of the top tenants in terms of total area leased, occupying 1,569,760 sq. ft. This shows the significant presence of large fashion retailers in the Indian market.

The next few years are likely to witness major supply additions across major cities, with the National Capital Region (NCR) expected to account for the majority of the new stock. Rental values across prominent high streets are on the rise and are expected to continue increasing until quality new supply is added