Investors, developers make a return to malls

Mumbai Bangalore: After staying away for nearly three years as the economy weathered its worst slump in a decade, mall developers and investors are slowing returning to evaluate retail properties, signalling a turnaround in sentiment.

Pioneer Property Zone (PPZ), a mall management company working on two projects in the metros, is one beneficiary of the turnaround. Work on the projects stalled in the past two years for lack of funds, but the projects have now received money from non-banking finance companies (NBFCs).

“There is an interest in malls from investors. We have got requests for valuations of certain sick properties, operating properties and fresh investments in new areas and new cities,” said Anand Sundaram, chief executive officer (CEO) of PPZ, who expects his properties to enter the market soon.

Mall development has been stalled as the economic slowdown took hold and deepened, resulting in two consecutive years of sub-5% growth that dented consumer demand. The economy has shown signs of bouncing back, growing 5.7% in the quarter to March, the fastest pace in two-and-a-half years.

Developers such as Kishore Bhatija, CEO, Inorbit Malls India (Pvt.) Ltd, have once again started looking at projects for acquisitions. “We have short-listed about four to five projects where development had stalled and are in the midst of evaluations,” said Bhatija, admitting that the firm’s plans for acquisitions were put on the back-burner in the past two years and are only now being revived.

A prominent Bangalore developer, who didn’t want to be named, is in the process of buying a shopping mall in Pune in a distress sale of sorts.

“The price is low and if we manage to close this deal, we may take a step forward towards a REIT,” he said.

REIT is short for real estate investment trust, an instrument that gives investors a chance to earn a regular income from rentals generated by the underlying property.

To be sure, there are doubts about the longevity of investor interest in shopping malls.

“There will again be a lot of investment in retail real estate over the next two years and then it will peter out,” said Sriram Khattar, CEO of the rental business at DLF Ltd, India’s largest real estate developer.

DLF’s last phase of investments of some ₹ 1,500 crore in developing retail malls was announced three years ago. “We may double our investments in the next phase,” he said.

The Securities and Exchange Board of India (Sebi) earlier this month banned the real estate developer and its chairman K.P. Singh from accessing the capital markets for three years after finding them guilty of unfair trade practices.

Besides new and stalled projects, investors are also looking at investing in completed assets capable of generating assured returns, experts said.

“Foreign funds are showing an interest in completed properties,” says Pankaj Renjhen, managing director, retail services at real estate consultancy Jones Lang LaSalle.

He explained that the lack of investments in developing new malls in the past three years had caused a shortage of quality retail real estate and had given an upside to existing malls as there is limited new stock coming to the market in the next three to four years.

For instance, in 2013, around six million sq. ft of retail space came up. In 2014, the supply of new space is estimated to be around 4.5-6 million sq. ft. This new space is largely the backlog of previous years.

Harminder Sahni, managing director at Wazir Advisors, a retail and consumer products consultancy, said there are only a handful of developers who want to build malls in today’s scenario, in which the overall real estate sentiment is still low.

“Retailers themselves are not in an expansion spree and are focusing more on increasing productivity of stores they already have rather than opening many more,” said Sahni. “While not many new malls are coming up, there is demand for space in those malls that are doing well and where there is limited vacancy.”

Any new project for which the planning starts now will only come to the market by 2019-20, said Renjhen.

Meanwhile, as the new malls pipeline looks bleak, retailers are looking at alternatives like high streets for setting up stores.

“Sales have been choppy and not much construction of new malls is on in the metros, as a result of which a lot of retailers are moving to built-to-suit high street formats,” said Pani.

sapna.a@livemint.com