How to Play India's Retail Real Estate Boom

This column was originally published on RealMoney on Nov. 28, 2007 at 2:00 p.m. EDT. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

This is the third column outlining the growth drivers for the Indian real estate boom under way at the moment. In the first two, we took a look at how and why residential and commercial real estate demand is leading to a real estate boom. Now, let's take a look at the last but not least driver for the growth in Indian real estate: the retail sector.

At present, India's retail sector is dominated by mom-and-pop stores. Organized or structured retail (chain stores, etc.) accounts for less than 5% of overall retail revenue in India. Compare that to the U.S., which has just fewer than 90% organized retail; the balance is in mom-and-pops and boutiques. I expect India to see tremendous demand from the retail sector for mall and strip mall buildout for at least the next five to 10 years.

Many of India's largest companies, such as Bharti, Tata Group, RPG, Aditya Birla Group, Bennett Coleman, Pantaloon Retail and Shoppers Stop, are on a massive-scale buildout for malls and strip malls. According to KSA Technopak (an Indian retail research firm), organized retail share by the fiscal year ending March 2010 will be just more than 10%. Overall retail revenue by fiscal year 2010 is estimated to hit $450 billion, per forecasts from KSA.

Currently, there's around 45 million to 50 million square feet of retail space in India, which will increase to 200 million to 250 million square feet by fiscal year 2012 per KSA. The Indian retail growth story is backed by increasing disposable income and increased local consumption due to expanding instruments such as credit cards, loans etc.

In fiscal year 2005, India had a mere 21.5 million square feet of space in malls across India. At the end of fiscal year 2007, as per KSA, mall space had increased to 50 million square feet. Most of that growth has been in North India where land is cheaper than in cities like Mumbai and Delhi.

Due to the land acquisition costs, malls in India tend to be much smaller than what we are used to here in the West with an average size of 300,000 square feet. According to KSA, there will be 650 malls in India by fiscal year 2010. At the end of fiscal year 2006 there were a total of 96 malls in India.

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