Main streets dominate retail leasing in Q2 2024: Report

July 8, 2024: Real estate services firm Cushman & Wakefield released its Q2-2024 Retail MarketBeat Report, highlighting the continued dominance of main street retail leasing, owing to limited new mall openings and a strong demand for high-quality retail spaces. According to the report, retailers are increasingly focusing on main streets in prominent locations across India, with emerging clusters forming around residential and commercial hubs. This trend is reflecting in leasing activity with high street leases accounting for 70% of total leases in Q2 2024, compared to 30% for mall leases.

The rental growth across prominent main streets in Q2 2024 further underscores their growing appeal. Kolkata, Bangalore, Hyderabad and Mumbai have all experienced significant year-on-year rental increases, demonstrating strong demand and potential for high-street retail in the country.

Mumbai MMR recorded 9-10% growth while Delhi NCR witnessed 3-5% growth. The rental growth was 11-15% in Bangalore, 7-8% in Pune, 10-25% in Hyderabad, 5-7% in Chennai, 13-16% in Kolkata and 7-12% in Ahmedabad.

The report also reveals a notable decline in mall vacancy rates across Delhi NCR, Bangalore, Pune and Ahmedabad during the second quarter. This trend is attributed to the lack of new mall openings and the robust demand for high-quality retail spaces, thereby contributing to a demand-supply imbalance to some extent. Superior Grade A/A+ category malls (institutional grade or listed developer assets with high experiential quotient), continue to maintain very low vacancy rates (typically in the single digits) across major cities.

In terms of supply, while the first half of 2024 saw no new mall supply enter the market, the second half is anticipated to witness a surge in retail space, with an addition of approximately 4.5 million square foot (msf) of primarily Grade-A malls. Mumbai is anticipated to lead the supply with 1.2 msf, followed by Chennai at 1.2 msf, Delhi-NCR at 1.2 msf and Bangalore at 0.9 msf.

The tightness in the superior-grade retail real estate space can also be seen in the retail portfolio of NEXUS Select REIT, where occupancies have reached around 98%. The REIT’s stock prices have climbed nearly 30% since its IPO in May 2023, and looking at the under-penetration, it has announced a near doubling of portfolio size over next 5 years. 

Saurabh Shatdal, head retail and managing director, Capital Markets, Cushman & Wakefield, “The second quarter of 2024 was marked by a strong demand for both Grade A malls and high street retail. The growth in both formats underscores the vibrancy of India’s retail landscape. While high street rental growth has seen a notable increase, the upcoming Grade A mall supply of 4.5 msf may stabilize rental costs in the short to medium term as demand-supply dynamics shift to an extent. However, we anticipate the main street activity to remain healthy. Additionally, the dominance of domestic brands, accounting for 53% of leasing volume, along with the strong performance of fashion and F&B highlight the evolving retail preferences in India.

• Delhi-NCR’s main streets and malls saw a combined total of 0.51 million square feet (msf) of activity in the second quarter of 2024, almost double the activity from the previous quarter and up 54% from the same time the previous year. This quarter, no new mall supply was recorded. With 0.36 msf of main street leasing, primarily from Gurgaon, main streets were the main drivers of activity this quarter. For the current year, we estimate roughly 1.0 msf of new mall supply, which should greatly enhance absorption volumes.
• In Mumbai, a total of 132,900 square foot (sqft) were leased in the second quarter of 2024 at grade-A malls, reflecting a strong leasing activity. Two Mumbai suburban micro-markets will have about 1.2 msf of Grade A mall space operating by the end of 2024. Term renewals in the city’s malls were the main cause of this spike. Prominent Mumbai main streets saw consistent lease activity during the quarter, totalling about 71,200 sqft.
• Bangalore saw 0.16 msf of main street leasing in the second quarter of 2024; 0.9 msf is anticipated to be added to Grade A mall space overall in 2024. In the second quarter, Bangalore recorded no new mall supply. Prominent shopping centres such as Nexus Shantiniketan in Whitefield, East Bangalore and Prestige Falcon City on Kanakapura Mian Road in South Bangalore both showed signs of robust demand for space.
• The leasing activity in Hyderabad’s retail sector increased significantly in Q2 2024, reaching 0.63 msf, a 29% QOQ rise and a 43% YOY gain. The city’s overall Grade-A mall vacancy rate is currently at 4.4%, despite the fact that leasing activity at malls remained mild. Important locations on important roadways have seen a notable boost in recent quarters, even though mall leases are still steady. The average rental in the city’s main streets has increased by up to 14% year over year but has remained relatively stable quarter over quarter.
• In Q2 2024, Kolkata saw retail lease volumes of around 63,000 sqft, representing a 61% rise on QoQ basis and a 46% increase on YoY bases. Despite being low in the previous few quarters, leasing across Grade A malls saw a rise in Q2. Malls accounted for 35% of quarterly lease volumes, up from 10% the quarter before.
• About 59,013 sqft were leased at Pune’s Grade-A malls during the second quarter of this year, marking a notable 2x increase in leasing volume when compared on a year-over-year basis. The fashion segment maintained its 30% market share. The number of well-planned main streets in the city is growing as more and more residential units and commercial constructions are added. Strong leasing in Koregaon Park’s high street resulted in a massive 127% gain in rentals. It is projected that the city’s main streets will continue to have range-bound average rental prices.
• The lease volume on Chennai’s main streets increased significantly in the second quarter, hitting 0.10 msf. 77% of the lease volume was made up of domestic brands, demonstrating the dominance of local companies in Chennai’s retail market. Suburban South, Northwest and Southwest were the main suburban routes in the city where the majority of leasing activity was centred. Even while overall mall rental rates were not much different from the previous quarter, certain malls saw small year-over-year increases of up to 4%. On the other hand, rentals for prime retail spaces on main streets noticeably increased.
• In the second quarter of 2024, Ahmedabad had a decent main street lease volume of around 61000 sqft, indicating a slight decline of 9% from the previous quarter’s robust results. On a quarterly basis, main street rentals have mostly stayed steady while year-over-year growth has been between 7-12%. In Q2 2024, leasing activity at Ahmedabad malls was recorded at around 10,000 sqft, a 45% decrease from the average of the preceding three quarters. The decline in leasing activity during the quarter might be linked to the restricted availability of premium mall space.