India may soon get first Real Estate Investment Trust of retail assets: JLL
India is set to get its first Real Estate Investment Trust (REIT) of retail assets as soon as institutional investors and developers seek to monetize their rental space in malls, according to JLL India.
REIT, a popular instrument in the world, was introduced in India a few years ago to attract investment in the real estate sector by monetizing rental-earning assets. It helps unlock the massive value of real estate assets and enables retailer participation.
Currently, there are three REITs listed – Embassy Office Parks REIT, Mindspace Business Parks REIT and Brookfield India Real Estate Trust – on Indian stock exchanges, but all are leased office assets.
Real estate consultant JLL, in its latest report on the commercial real estate segment, highlighted that institutional investment in the retail sector has accelerated since 2021. More than $862 million in investment has been made in from 2021 (excluding portfolio transactions).
Many global investors are investing in the retail sector either by taking a stake in existing assets or through entirely new development platforms.
“The retail market appears to be benefiting from favorable demographics, rapid urbanization and rising consumption,” the consultant said.
The report notes that investors expect healthy long-term returns, given the growth potential.
“Investors are looking for Grade A quality assets from established developers with less vacancy. Investors prefer leased assets over assets sold in strata to ensure fair rents and timely returns,” he said.
The consultant also mentioned that investment in retail assets is not limited to metros as significant activity has also been recorded in Tier 2 and Tier 3 cities.
“Furthermore, investments from these large institutional players help developers partially or fully exit the project, reduce debt and focus on other developments. Many foreign funds are ready to acquire quality commercial assets generating good rental income,” the report said. .
Investors are buying or building portfolios considering a future public exit through REITs.
“REITs are still relatively new in India and are prevalent in the office sector. India is set 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,” said JLL India.
Retail REITs will be the next big step in the sector as institutional investors build portfolios of higher quality retail assets, he added.
JLL India cited a few examples of institutional investors building a large retail property portfolio.
Nexus Malls acquired Forum Malls in a $1.2 billion deal between Blackstone and Prestige Group to take over the latter’s revenue-generating retail assets. Lake Shore India Advisory, backed by the Abu Dhabi Investment Authority, has acquired Viviana Mall in Thane from GIC and property developer Ashwin Sheth Group for over Rs 1,900 crore, according to the report.
That aside, 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 rental demand in shopping centers to increase and exceed pre-pandemic levels by 2023.
The growth potential inherent in the sector is quite robust and institutional investments should increase it further. This would bring more transparency and an improved operating environment for malls, JLL India said.
On the overall supply situation, JLL said the stock of Grade A malls in India’s seven major cities (Delhi, Mumbai, Pune, Bangalore, Kolkata, Chennai and Hyderabad) stood at 90.6 million square feet in the first half of 2022. More than 50% of the mall’s stock is in Delhi NCR (29 million square feet) and Mumbai (19 million square feet).
Over 70 shopping malls with a total retail space of 31.02 million square feet are expected to become operational by 2025 across India’s seven major cities.
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