India's Retail Realty Sector Booms Amid Rising Urban Consumption

A Nuvama report underscores India's surging urban consumption driven by increasing per capita income, a growing middle class, and urbanization. This trend spells growth for the retail real estate sector, particularly malls, making it a focal point for investments in the coming decade.

India's rising per capita income, burgeoning middle class, and expanding urbanization are fueling a surge in urban consumption, with the retail realty sector emerging as a key beneficiary, according to a Nuvama report. The report highlighted that discretionary spending, particularly in urban areas, supports a bullish outlook on the country's consumption growth, making retail real estate, especially malls, an attractive investment opportunity in the coming decade.

"Increasing per capita income, burgeoning middle class, and expanding urbanization underpin our bullish stance on urban consumption. Retail realty (malls) is an interesting proxy for this consumption theme," the report stated. The demand for high-quality retail spaces in India has been steadily increasing, yet there is a shortage of top-tier retail infrastructure compared to Southeast Asian countries like Indonesia, the Philippines, Thailand, and Vietnam.

This shortage is driving high demand for existing spaces, leading to low vacancy rates and industry consolidation. For retail realty players, this translates into robust portfolio growth and strong cash flows. "Low vacancies and industry consolidation are driving strong portfolio growth and robust cash flows for retail realty players," the report added.

Several factors are expected to support and accelerate consumption growth in India over the next decade. First, India's per capita GDP is projected to reach around USD 4,000 by the end of the decade, boosting purchasing power. Second, the share of middle-class households is expected to grow significantly, reaching approximately 79 percent by FY30. This shift in household income distribution will likely spur demand for a wider range of products and services.

Additionally, India's urban population is forecasted to increase from 35 percent in 2021 to around 41 percent by 2030 and further to 50 percent by 2050. This urbanization will continue to fuel demand for retail spaces as urban consumers increasingly seek modern shopping experiences. Another critical driver is the rise in discretionary spending, with more consumers shifting towards premium brands and high-quality products. This growing preference for premium goods is set to bolster the retail sector, with malls playing a crucial role in providing a platform for both international and domestic premium brands to connect with consumers.

(With inputs from agencies.)