The Indian retail leasing market saw a dominant performance from high street retail during the July-September quarter of 2024, with 68% of the total 1.6 million square feet (MSF) leased in this segment. Hyderabad, Delhi-NCR, and Chennai accounted for 70% of the total main street leasing volume, indicating strong demand for high-visibility retail spaces. According to data from Cushman & Wakefield, this robust demand for high street locations has been the primary driver of rental growth in key cities.

High Street Demand Drives Rental Growth

The increased demand for high street retail spaces has resulted in significant rental growth in cities such as Delhi-NCR, Bengaluru, Chennai, and Kolkata, where rents have seen rises of up to 15% year-on-year (YoY). The shortage of available prime retail spaces in malls has contributed to the ongoing strength of high streets, as retailers continue to seek high footfall locations in major urban centres.

As Mr. Saurabh Shatdal, Head of Retail and Managing Director, Capital Markets at Cushman & Wakefield, stated, the Indian retail sector is evolving rapidly, with main streets benefiting from the limited supply of new mall spaces. The demand-supply imbalance in the market is expected to sustain the rental increases seen across Delhi-NCR and Pune, where retail space demand is particularly high. The trend suggests that high streets will continue to dominate retail leasing for the foreseeable future.

Challenges in the Mall Leasing Market

In contrast, leasing activity in malls during Q3 2024 was relatively subdued, constituting just 32% of the total leasing volume. This sluggish activity can be attributed to the lack of new mall supply, which restricted the options available for retailers looking to enter or expand in the mall segment. However, the retail market is expected to see a shift in Q4 2024, as approximately 1.8 million square feet (MSF) of Grade-A mall space is expected to open, primarily in Mumbai, Delhi-NCR, and Pune. This increase in new mall supply is anticipated to meet the pent-up demand and provide retailers with more opportunities to lease premium spaces.

Tightening Vacancy Rates in Grade-A Malls

One of the significant trends observed in the retail market is the tightening vacancy rates in Grade-A malls, particularly in major cities. As demand from both domestic and international brands continues to rise, the vacancy rates in top-tier malls have significantly declined. This high demand is largely driven by the increasing presence of foreign brands, which accounted for 30% of leasing volume in malls for the year 2024.

The shortage of available space in Grade-A malls has created an attractive environment for retailers looking for high-quality locations. As a result, the competition for these spaces is expected to intensify, particularly in cities where premium mall spaces remain in high demand. The expected increase in new mall openings in Q4 2024 will provide some relief to the tight market conditions, but the trend of strong demand for well-located retail space in India is expected to persist.

Conclusion: Outlook for Indian Retail Leasing

The Indian retail sector remains resilient, with high street leasing continuing to lead the market in terms of volume and demand. The limited mall supply during the July-September 2024 quarter has placed even greater importance on the availability of prime high street locations. As rental growth continues across Delhi-NCR, Bengaluru, and Chennai, the future of the retail leasing market looks promising, with high street leasing expected to maintain its dominant position.

The mall leasing market faces a quieter period due to supply constraints, but the expected addition of Grade-A mall space in the coming quarter is expected to address this gap. As the sector evolves, retailers will continue to seek prime locations, driving both high street demand and the eventual recovery of mall leasing activity as new mall projects come to market. The continued rise of foreign brands and the tightening of vacancy rates in premium malls further underscores the growing importance of strategic retail location planning in India’s dynamic market.

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