India's airports become prime retail territory

As the race for quality retail space heats up in India, a growing number of brands are turning their attention to the country's airport terminals.

December 06, 2016

As the race for quality retail space heats up in India, a growing number of brands are turning their attention to a previously overlooked area; the country’s airport terminals.

It’s not just that more passengers are passing through India’s airports every year as the rising affluence of the middle class opens up new domestic and international travel options. The interest in these emerging retail hubs is also down to a crunch in premium space for domestic and international retailers in India’s big cities.

As a result, current vacancy levels at Mumbai, Delhi and Bengaluru airports vary from 0-5 percent in the international terminals to 5-10 percent in the domestic.

“In addition to the low vacancy rates, rents for retail space at international terminals of Mumbai and Delhi airports are hovering at INR 3,000-3,500 ($45-$52) per sq ft a month – more than three times what space on the ground floor of a few top grade-A luxury malls in these two cities range goes for,” says Pankaj Renjhen, managing director of retail services at JLL India.

Big name retailers are taking note. Brands including Accessorize, Mont Blanc, Hugo Boss and Swarovski have recently built a presence at terminals across Mumbai, Delhi, Hyderabad, Bengaluru, and Kolkata airports while international group Sunglass Hut is planning to open more stores in India’s airports.

“Very high returns for some brands from their airport stores explain why this format is becoming so lucrative and in turn, helping transform airport terminals in major metropolitan areas in to retail hubs,” explains Renjhen. “Both the Delhi and Mumbai airports now offer a good tenant mix and demand for retail space is expected to rise at other busy airports too. Indian airports are witnessing tremendous commercial transformation through public-private partnerships, which is resulting in the development of such dedicated retailing areas,” he adds.

These are extending beyond the terminals themselves and into the surrounding areas. Worldmark at Aerocity, for example, is a mixed-use development with retail opportunities located in the hospitality district near Terminal 3 of Delhi International Airport.

The right mix

For the retailers coming into the airport space, adapting to the environment and making the most of the smaller retail areas is crucial to their success. While apparel stores can have a store size ranging anywhere between 500 sq ft and 5000 sq ft, bookstores have an average store size of 200-300 sq ft. Food and beverage store sizes are generally smaller as common sitting areas are provided by the airports.

“Stores at airports are all about efficient spaces as the customer base is focused and has a limited time to spend. Hence, merchandise with a quick turnaround time is the focus,” says Renjhen.

“The product assortment offered by both international and domestic brands at their airport shops could differ from their other stores and requires research on an ongoing basis as the merchandise mix and type of offers here are geared towards travellers, and not shoppers. Although impulse shopping happens, the primary motive of travellers is flying to their destination and not shopping,” he adds.

A growing minnow

India has a way to go to compete with the sought after terminal space of Asia’s big airports such as Singapore or Hong Kong. But it has big potential to increase its share of in the growing global duty free retailing market. A report from Fung Global Retail and Technology predicts a compound annual growth rate of 6.7 percent of the global market between 2015 and 2020 with India forecast to be the fastest-growing market at 20.7 per cent.

Renjhen expects retail sales to keep increasing at airports as passenger traffic continues to rise. Delhi International Airport, the busiest airport in South Asia, recorded more than 50 million passengers in the 12 months to May 2016 and is looking to hit the 55 million mark in 2017.

“If retailers get their product mix right and airports understand the dynamics of maintaining a good tenant mix, the future for airport retailing in India looks very promising,” Renjhen concludes.