The combined retail space in the six largest markets, totaling 105 million square feet (msf), is expected to rise to 116-118 msf by March 2025. According to credit rating agency ICRA, the expected new supply in six major cities of India it is 9-10 msf in FY2024 and around 6 msf in FY2025.
Delhi NCR leads with a supply contribution of 30%, followed by Bengaluru (20%), MMR (17%), Pune (14%), Hyderabad (13%) and Chennai (6%). ICRA projects that Delhi NCR, Pune and Hyderabad will account for 85% of the new supply in FY2025, and that 10% of the upcoming supply will already be pre-leased from September 2023.
Mall operators can expect rental revenue growth of 9% to 10% year-over-year in fiscal 2024 and 8% to 9% in fiscal 2025. This growth is attributed to healthy occupancy rates, increases expected commercial values and rent increases.
In the first half of FY2024, the ICRA sample saw an 8.4% year-on-year increase in rental income. Anupama Reddy, vice president and group co-head of corporate ratings at ICRA, highlights the strong recovery in footfalls and business values in FY2023 and H1FY2024. She expects a 14-15% rise in the merchandise value in FY2024 and 10-12% growth in FY2025, driven by factors such as premiumization and robust urban consumption.
Various segments, including jewellery, electronics, premium apparel, beauty care products and entertainment, have witnessed above-average consumption growth in recent quarters. This trend is expected to continue in the short and medium term due to strong consumer demand.
The private consumption expenditure component of India's GDP has increased, supported by higher household spending. According to the RBI Consumer Confidence Survey for September 2023, household spending has remained strong over the past year, driven by higher essential and non-essential spending. This trend is expected to continue over the next twelve months, supporting retail sales among shopping center tenants.
While net absorption was strong at 3.2 msf in the first half of FY2024, vacancy levels increased marginally by 100 basis points to 20% from September 2023, mainly due to the recent commissioning of 5 .6 msf new offer. ICRA expects occupancy to remain between 81% and 82% from March 2024 (compared to 81% a year ago) and improve to 82-83% by March 2025.
Reddy concludes that ICRA expects the credit profile of retail operators to remain stable, supported by healthy net operating income (NOI), driven by business value and rental growth, moderate leverage and comfortable debt coverage metrics .