India is expected to get its first Real Estate Investment Trust (REIT) of retail assets soon as institutional investors and developers look to monetise their rent-yielding space in shopping malls, according to JLL India.
REIT, a popular instrument globally, was introduced in India a few years ago to attract investment in the real estate sector by monetising rent-yielding assets. It helps unlock the massive value of real estate assets and enable retail participation.
At present, there are three listed REITs – Embassy Office Parks REIT, Mindspace Business Parks REIT and Brookfield India Real Estate Trust – on Indian stock exchanges but all these are of leased office assets.
Property consultant JLL in its latest report on retail real estate segment highlighted that institutional investment in the retail sector has been picking up since 2021. More than USD 862 million investments have come from 2021 (excluding portfolio deals).
Many global investors are investing in the retail sector either by buying a stake in existing assets or through greenfield development platforms.
“The retail market seems to benefit from favourable demographics, rapid urbanisation, and rising consumption,” the consultant said.
The report noted that investors are expecting healthy returns in the long run, considering the growth potential.
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“Investors are looking for quality Grade A assets by established developers having less vacancy. Investors prefer leased-based assets over strata-sold assets to ensure fair market rentals and timely returns,” it said.
The consultant also mentioned that investment in retail assets is not just limited to metros, as significant activities have been recorded in Tier 2 and Tier 3 cities as well.
“Additionally, investments by these big institutional players help developers to exit the project partially or fully, reduce their debt, and focus on other developments. A lot of foreign funds are willing to acquire quality retail assets yielding good rental income,” the report said.
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Investors are either buying or creating portfolios considering future public exit via REITs.
“REITs are still relatively new in India and are prevalent in the office sector. India is expected to get its first retail REIT soon. With quality supply in the pipeline and new malls announced by established developers, the Indian retail sector is expected to attract more institutional investment,” JLL India said.
REITs in retail will be the next big move in the sector as institutional investors are building portfolios of superior-grade retail assets, it added.
JLL India cited few examples of institutional investors creating large retail real estate portfolio.
Nexus Malls acquired Forum Malls as part of a USD 1.2 billion deal between Blackstone and the Prestige Group to take over the income-generating retail assets of the latter. Abu Dhabi Investment Authority-backed Lake Shore India Advisory has acquired Viviana Mall in Thane from GIC and realty developer Ashwin Sheth Group for over ₹1,900 crore, the report said.
That apart, Singapore sovereign wealth fund GIC and The Phoenix Mills Ltd have entered into a strategic partnership to establish an investment platform for retail-led mixed-use assets in India.
The consultant expects leasing demand in malls to expand and surpass pre-pandemic levels by 2023.
The inherent growth potential of the sector is quite robust, and institutional investment is expected to increase it further. This would bring more transparency and improvement in the operating environment of shopping malls, JLL India said.
On the overall supply situation, JLL said that the stock of Grade A shopping malls in the top seven cities of India (Delhi, Mumbai, Pune, Bangalore, Kolkata, Chennai, and Hyderabad) is at 90.6 million sq ft in H1 2022. More than 50 per cent of the mall stock is in Delhi NCR (29 million sq ft) and Mumbai (19 million sq. ft).
More than 70 shopping malls with a total retail space of 31.02 million sq ft are expected to become operational by 2025 across the top seven cities of India.