Top Southern Retail Markets Have Slowed Down

Top Southern Retail Markets Have Slowed Down

Kerala has highest per capita consumption

The retail market in southern India has remained stable over the last one year. Demonetisation impacted retail sales at counters across the country, and the real estate market has been stagnant for some time now. This has resulted in delays in construction of new shopping centres and malls in southern India.

Bengaluru is among the most preferred retail destinations for most apparel and fashion brands. However, the prevailing economic conditions has led to a delay in the supply of new mall capacity. According to reports by Cushman and Wakefield, of the approximately 2.7 million square feet of new mall supply scheduled for completion in the fourth quarter of 2016, approximately half has been deferred to the next couple of quarters. Further, the launch of select malls totaling 1.3 million square feet of space in Electronic City has been put on hold due to lack of demand from retailers.

A similar trend is witnessed in Chennai, another important retail market in southern India. According to Cushman & Wakefield, the city did not witness any new mall supply during the fourth quarter as the approximately 0.9 million square feet scheduled for completion was deferred to 2017.

And in Hyderabad, the situation is no different. Mall supply of nearly 1.5 million square feet, which was anticipated during the quarter, has been delayed by 6-12 months. With this postponement, the city has not witnessed any new mall supply for nine consecutive quarters. This clearly shows a slowing retail trend in south India.

Vacancy rates in south India

In Bengaluru, vacancy rate of malls increased to 12.5% in of 2016 last quarter, from 11.7% in the previous quarter. It is expected that three malls totaling around 1.5 msf of space will become operational over the next two quarters, which could lead to a marginal increase in overall vacancy.

In Chennai, leasing of retail space was driven mainly by apparel, F&B and computer hardware segments, which led to a fall in vacancy levels by 0.7 percentage points to 7.6% at the end of the fourth quarter of 2016. H&M leased space in one of the prominent malls in the city during this quarter.

The market is likely to witness addition of approximately 0.5 msf of new mall supply in the next few quarters in Chennai. With this, new supply will be seen in the city after a gap of 12 quarters. This could lead to a marginal increase in vacancy. In Hyderabad, overall vacancy rate increased marginally to 4.6% at the end of the quarter, as a few retailers exited prominent malls in Madhapur and Kukatpally submarkets.

With no new malls expected in the next few quarters, vacancy rates will remain stable. Rentals in all these markets did not change compared to the previous quarters. In fact, the lower sales due to demonetisation may lead some retailers to renegotiate lower rental rates.

Where does Kerala rank in retail activity

Kerala is by far, overlooked in most of the retail reports, even as the country's largest mall - LuLu Mall - is in Cochin. LuLu Mall, in just three years has become the city's preferred shopping destination, and a major tourist attraction for the millions of tourists visiting the state every year.

And Kerala's capital city Thiruvananthapuram is expected to soon have the country's second largest mall, as LuLu Group plans to invest US$ 300 million in the city, to build LuLu Mall over 2 million square feet area.

A recent report by the NSSO shows that rural Kerala had the highest per capita consumption per month among rural areas, during 2011-12. At Rs 2,668 per month, it was far above the all-India rural average of Rs 1,430 and well above that of Punjab, which was the next highest.

More interesting, though, is the change from 2003. In that year, too, the numero uno in rural consumption was Kerala, followed by Punjab. Rural Haryana, at No. 3, was at the same rank in both 2003 and 2011-12.

But rural Gujarat, which was the fourth from the top in consumption in 2003, slipped to a lowly No. 9 among the selected states. On the other hand, rural Andhra Pradesh, which was at No. 6 in 2003, improved its rank to No. 4 in 2011-12. Both rural Rajasthan and rural Karnataka also saw good growth in consumption.

What about urban India? The 2011-12 survey showed that urban Haryana topped the charts, no doubt aided by the growth of Gurgaon and other areas near Delhi. Among the selected states, urban Haryana improved its rank from No. 4 in 2003 to No. 1 in 2011-12. Urban Kerala, the top consumption rank holder in 2003, was pushed to second place. Maharashtra retained its No. 3 position.

Urban Punjab however, slipped in the rankings. Urban consumption in Gujarat in 2011-12 slipped below the all-India average. Indeed, average urban consumption in Gujarat fell below that of West Bengal.

So clearly, Kerala is a southern state that needs to be looked at by apparel and fashion retailers looking to expand their markets. Kerala consumers, especially teenagers, young and middle aged adults are starved for fashion options.

Consumer tastes are changing, the modern consumer wants modern clothes, is aware of fashion trends, but does not have the shopping options to fulfill this demand. Retailers take note.