As stores remain the heart of the business, retail leasing will reach a 4-year high in 2023: CBRE

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  • CBRE predicts that retail leasing activity will reach 5.5-6 million square feet in 2023 – the highest since the 2019 peak.
  • Consumers prefer to research products, seek support from sellers, and drive in-store shopping experiences.
  • As online shopping grows, high return costs may drive brands to use store networks to offset costs.

Despite the rapid evolution of e-commerce, physical stores will remain the core of business, says a new report from real estate services provider CBRE. It predicts retail lease activity will reach 5.5 to 6 million square feet by 2023 – the highest since the 2019 peak of 6.8 million square feet.

Ram Chandnani, Managing Director – Advisory and Transaction Services, CBRE India, said retailers need to be prepared and consider strategic investments amid rapidly changing consumer behaviour.

Consumer preference for researching products, seeking support from a retailer, real-time purchasing, and a layer of experience that physical stores provide are the top reasons for retailers to engage customers in an in-store shopping experience.

“While global headwinds may impact discretionary retail spending, cautious optimism among consumers coupled with retailers’ diversified location and omnichannel sales strategies are likely to help the industry navigate to the next normal,” said Chandnani.

There are also supply-side drivers, as a significant portion of the pent-up supply is lined up for completion in 2023. Retail supply is estimated to reach 6 million square feet by 2023 – the highest in the past five years, and primary leasing in new completed shopping centers will remain an important driver.

Several investment-worthy projects launched by renowned players in the past 1.5 to 2 years are also expected to become operational in 2023, the report said.

“We believe that any impact of an expected slowdown on economic activity will be evaded by strong macroeconomic fundamentals and domestic consumption. India’s strong domestic consumption would continue to bolster the retail sector, which would see a strong supply pipeline in 2023, boosting leasing activity,” said Anshuman Magazine, Chairman and CEO – India, Southeast Asia, Middle East and Africa, CBRE.

Store networks to offset the costs of reverse logistics

The report mentioned emerging trends and said so omnichannel strategies will remain the focus of retail strategies due to the high cost of reverse logistics.

“Online returns put enormous stress on distribution networks, and the return logistics costs for an average return can be as high as 66% of the original retail price of the item,” said CBRE.

As demand for online shopping continues to grow, retailers are likely to turn to store networks to offset costs. The report also said fashion and apparel, home goods and department stores are likely to be the top rental businesses in 2023.

Brands are exploring new areas, strategies

Yet another trend is the willingness of most brands that have an existing customer base to explore locations where retailers have used innovative concepts to attract audiences.

“In an effort to further diversify their location strategies, several international brands in the F&B (food and beverage) and apparel segments are also opening stores along highways or interstates,” the report said.

Brands are now open to exploring markets outside of popular urban locations. “India’s transition to an organized retail market would be driven by continued growth in these cities. Thus, it would become vital for retail stakeholders to harness the economic and development potential of these cities,” said CBRE.

A rising urban population, an increase in per capita income, a post-pandemic supply chain revamp and successful brand launches in Tier II, III and IV markets have prompted both retailers and prominent developers to explore emerging untapped markets, the report said.

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