The government's decision to allow 51% foreign direct investment (FDI) in multi-brand retail has cheered both the retail and the real estate sectors. According to experts, the real estate sector will also be able to consume the fruits of this reform, in terms of boosting development of new shopping malls.
Pankaj Renjhen, Managing Director - Retail Services, Jones Lang LaSalle India said, "From a retail real estate point of view, it will be open up immense opportunities in the medium and long term, as the demand for quality real estate will rise. Currently, some retailers are cash-strapped and this will provide a sort of bail-out option to them,"
Renjhen added that the investment by local and new international retailers that are likely to flow into the sector will also take the form of investments into real estate at the front end and back end. In the front end, he said that retail store spaces will see investments and in the back end, better quality warehouses could be seen.
Real estate sector consultants also believe that this move would help solve the problems of vacant spaces in shopping complexes will be resolved. According to various reports by real estate consultants in India, the vacant space in malls that ranges from 15-20%, will rise by atleast five to seven% in the next three years.
The retail sector in India, according to Renjhen, has been plagued with lack of storage infrastructure. However, he said that FDI will be a powerful catalyst to the required growth in the retail industry and, in long term, will prove beneficial to all the major stakeholders. "There will be investment in storage and transportation infrastructure, technology and supply chain operations," he added.
He further said that there might be an increase in demand and increased investor confidence, coupled with increased transparency in the retail real estate sector due to FDI.
With competition increasing, he is of the view that it will increase the interest and confidence level of real estate developers to set up quality shopping centres. "They now have reason to set behind them their experiences post 2008 and can once again consider investing in this asset class with a clear vision to long-term profit," he opined.