Home / Industry / Retail /  Real estate firms, foreign funds are betting big on mall projects

Bengaluru/Mumbai: Real estate developers and global investors are looking to invest significantly in building new shopping malls, as demand outgrows fresh supply, the e-commerce euphoria wanes and they look to diversify their portfolios.

K. Raheja Corp., Phoenix Mills Ltd, DLF Ltd and Prestige Estates Projects Ltd are on an expansion spree by building new malls or buying out under-construction or operational ones, while global investors such as Blackstone Group Lp, Xander Group Inc. and GIC Pte Ltd are looking at expanding their investment portfolios in the retail space.

“We are looking at all options—building new malls as well as acquiring malls that are not complete and those that are operational. There are a fair number of opportunities to buy under-construction and ready malls in the top cities that we are looking at," said Atul Ruia, joint managing director, Phoenix Mills. It has retail-led mixed-use projects under the High Street Phoenix brand in Mumbai, Pune, Chennai and Bengaluru.

Another Mumbai-based firm, K. Raheja Corp., is looking to spend about 2,500 crore to expand its retail portfolio in the next four to five years. It plans to add around 2.5-3 million sq. ft of retail space to its 3 million sq. ft of existing operational space through greenfield, brownfield or acquisition of operating malls, mainly in western and southern India. It currently operates six malls under the brand Inorbit.

“There are more than a dozen opportunities which we are actively pursuing. We are discussing acquiring land for our greenfield project; there are projects which are halfway made and not complete, and there also a couple of operating malls which we are in discussions for," said Rajneesh Mahajan, executive director, Inorbit Malls.

Real estate in India has seen an unprecedented slowdown in the past three years, with residential sales and launches taking the biggest hit. Commercial office space has been the bright spot with investors lapping up most of the quality office space that was available. A number of foreign funds are now looking to diversify their portfolios and are looking at retail assets to invest.

The two biggest private equity deals this year were in the retail sector. Blackstone Group agreed to buy 1 million sq. ft of retail space in L&T Realty Ltd’s Seawoods project in Navi Mumbai for 1,450 crore and sovereign wealth fund GIC bought a 49% stake in Viviana Mall in Thane, near Mumbai, at an enterprise value of about 1,300 crore.

Over the past 10 years, Xander Group has invested more than $2 billion in equity in real estate in India from its various platforms, and has also built shopping malls under its development arm Virtuous Retail.

It helps that the National Democratic Alliance government relaxed foreign direct investment norms last November, prompting global investors such as Xander to explore more ways of investing in real estate.

Under Virtuous Retail, the firm is looking to add more assets, both new developments and acquisitions, with New Delhi, Hyderabad and Mumbai being the preferred destinations.

“We have a war chest to make new investments in greenfield projects and are at an advanced negotiation stage. We are also looking to acquire existing assets if they meet our parameters and, finally, we are open to entering into operational management contracts to run malls and have been approached by investors for the same," said Siddharth Yog, founder of Xander Group.

Though retail is commonly clubbed together with residential and commercial office space, Yog said it has more in common with the hospitality business, where operational challenges are many. “This year, we have an advanced pipeline of closing a project each in NCR and Mumbai, and acquire a couple of projects in south India," Yog said.

Among the new malls that have opened in recent months, Virtuous Retail’s mall in Bengaluru and DLF’s Mall of India in Noida have both done well.

In June, Mall of India crossed 1.3 million footfalls a month, compared to January, when it was at 0.4 million.

Mumbai-based Oberoi Realty Ltd, which mainly builds residential projects, is looking to set up two more malls in the city as part of the mixed-used developments coming up in Borivali and Worli. Bengaluru-based Prestige Estates Projects has five malls underway, totalling 3 million sq. ft, as part of its mixed-use projects. These are in Bengaluru, Kochi and Mysuru.

“We believe the retail story is intact and there has been no contraction. E-commerce will only stimulate consumption, not curtail it," said Suresh Sunagaravelu, executive director, retail, hospitality and new business, at Prestige Estates Projects.

Just like residential and commercial office, retail real estate development is also undergoing a consolidation phase where serious developers are growing and smaller, stand-alone mall developers are selling out.

On an average, mall supply over the next two-three years will be in the range of 2.5-3 million sq. ft, much less than what the demand is.

Over the past six months, the retail sector has shown signs of strength and growth, with e-commerce sales being sluggish, footfalls and productivity of brands increasing and most crucially, very little retail supply in the market, said Pankaj Renjhen, managing director, retail services, at property advisory JLL India. “What is reassuring is that all the good malls have been recording growth and serious players are looking to expand cautiously," said Renjhen.

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