Private equity upbeat on retail commercial space in India: report

The share of retail sector assets in cumulative PE investments in India has increased to 18% in the first half of 2016, compared to 2% in the same period of 2015

Sameer Joshi/Mint
Sameer Joshi/Mint

According to real estate consultants Cushman & Wakefield, first half (H1) of 2016 witnessed the highest annual private equity (PE) investments in retail with over Rs3,350 crore being invested, compared to only Rs250 million invested in the first half of 2015. This is the highest annual PE investment made since 2008.

Owing to factors such as improved leasing activity, relaxed government policies and positive economic outlook, institutional and PE investors are more confident towards investing in retail assets. Moreover, with the government clearing tax hurdles for Real Estate Investment Trusts (Reits), PE funds are increasingly exploring opportunities in the retail sector as these assets can also be listed under a Reit portfolio.

The share of retail sector assets in cumulative PE investments in India has, therefore, increased to 18% in the first half of 2016 as compared to 2% recorded in the same period of 2015.

H1 2016 also saw new mall supply increase to 4.8 million sq. ft, from a mere 0.2 million sq ft in the corresponding period of 2015. Delhi-NCR accounted for the highest supply during the period, followed by Pune and Mumbai. These new mall spaces are expected to provide quality spaces to retailers, and wider options for expansion across multiple cities.

Owing to completion of Mall of India, which is one of the largest malls in India, Delhi NCR accounted for 64% of the share in new supply. However, Delhi NCR also accounts for the second highest vacancy rate (20%), owing to over-supply of retail spaces in the market. Pune witnessed three malls becoming operational, with 0.8 million sq. ft, while Mumbai witnessed 0.4 million sq. ft of mall space in 2016. Delhi-NCR and Mumbai remain the largest retail markets, accounting for 35% and 20% respectively, of the mall stock across the top 8 cities in India.

Total new supply of about 13 million sq. ft across the top 8 cities is scheduled for completion by the end of 2018. Over 46% of this supply is in Bengaluru and Chennai. With rise in demand and declining new supply, the vacancy rates are expected to taper over the next 1-2 years, creating a more balanced equation between demand and supply.

single-brand retail

Since 100% foreign direct investment (FDI) in single brand retail is allowed under the automatic route, several foreign retail brands have entered India and are rapidly expanding their chains.

Some of the prominent retailers that have entered Indian markets in H1 2016 are Muji, BoConcept, Neil Barrett, Massimo Dutti, Armani Exchange, and Cole Haan. Several retail brands such as Kate Spade, Cath Kidston, Apple and Ikea are in process of opening their first stores.

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