As stores remain at ‘heart of business’, retail leasing to hit a 4-year high in 2023: CBRE

• CBRE forecasts that retail leasing activity will hit 5.5-6 million square feet in 2023 – the highest since the 2019 peak.
  
• Consumers prefer to examine products, seek salesperson support, driving in-store shopping experiences.
  
• As online shopping grows, high cost of returns might drive brands to leverage store networks to offset costs.

In spite of the rapid evolution of e-commerce, brick-and-mortar stores will remain at the heart of business, says a new report by real estate services firm CBRE. It forecasts retail leasing activity will hit 5.5-6 million square feet in 2023 – the highest since the 2019 peak of 6.8 million square feet.

Ram Chandnani, managing director – advisory & transactions services, CBRE India, said that retailers must be prepared and consider strategic investments amid rapidly changing consumer behaviour.

Consumers’ preference for examining products, seeking support provided by a salesperson, real-time purchase and a layer of experience offered by brick-and-mortar stores — are the top reasons for retailers to engage customers in an in-store shopping experience.

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

There are supply-side drivers too as a significant amount of pent-up supply is lined up for completion during 2023. Retail supply is estimated to touch 6 million square feet in 2023 – highest in the past five years, and primary leasing in newly completed malls will remain a key driver.

Several investment-grade projects launched by reputed players in the past 1.5-2 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 circumvented by strong macroeconomic fundamentals and domestic consumption. India’s strong domestic consumption would continue to strengthen the retail sector, which would see a strong supply pipeline in 2023, driving leasing activity,” said Anshuman Magazine, chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE.

Store networks to offset reverse logistics cost

Listing out emerging trends, the report also said that omnichannel strategies will remain the focus of retail strategies due to high cost of reverse logistics.

“Online returns cause enormous stress on distribution networks, and reverse logistics cost for an average return can go up to 66% of the original sales price of the item,” said CBRE.

As demand for online shopping continues to grow, retailers are likely to leverage store networks to offset the costs. The report also said that fashion & apparel, homeware, and department stores are likely to lead leasing activity in 2023.

Brands explore new locales, 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 draw a crowd.

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

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

Rising urban population, increase in per capita income, supply chain revamp after the pandemic and successful brand launches in Tier-II, III and IV markets have led retailers and prominent developers alike to explore emerging untapped markets, the report added.

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