Retail industry struggles to secure quality real estate amidst challenges

Brands from various sectors are facing a battle in securing high-quality real estate due to skyrocketing rentals and competition for space. The surge in store expansion initiatives by both large and small brands, combined with the aftermath of the COVID-19 pandemic, has exacerbated the scarcity of available properties.

Major retailers are attributing their ambitious expansion plans to compensate for the slow growth in 2020 and 2021. As mobility improves and consumers return to physical stores, the pace of real estate expansion has accelerated, surpassing the available supply in the market.

Additionally, the pandemic has caused delays in numerous large-scale retail projects, resulting in a shortage of available properties. In 2022, there was a significant rise of nearly 4.7 million sq. ft in retail absorption compared to the previous year. However, the supply additions in 2022 declined from the previous year, with only four malls covering approximately 1.4 million sq. ft. becoming operational in Bengaluru and Pune, as per data from CBRE.

Following the movement restrictions and weakened demand caused by the pandemic, real estate rentals experienced a significant crash. However, with the gradual reopening of the economy, major retailers such as Reliance Retail, Aditya Birla Fashion & Retail, and Devyani International, alongside several direct-to-consumer brands, have intensified their offline expansion efforts. According to CBRE's India Market Monitor–Q1 2023 report, fashion and apparel companies led retail leasing activity in January-March, followed by homeware and department stores, food service, luxury, and consumer electronics.

Devarajan Iyer, the executive director and CEO of fashion retailer Lifestyle, highlighted the noticeable increase in capital expenditure by apparel retailers in areas such as realty, product development, and manufacturing. This trend has contributed to a rise in rental activity by brands. However, the limited availability of prime locations poses a significant obstacle. With many high street properties already occupied and leases spanning 10-20 years, the metros and popular high streets offer minimal room for new brands. Even if space is available, it comes at a premium cost.

Bert Mueller, co-founder and CEO of Bengaluru-based restaurant chain California Burrito, described the current scenario as a "big challenge" due to expanding competition. Mueller noted that finding quality real estate has become considerably more challenging this year compared to the relative ease experienced in 2020 and 2021. As brands across industries continue to expand their footprint in the post-pandemic era, the battle to secure desirable real estate is intensifying.

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Retail industry struggles to secure quality real estate amidst challenges

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