In real estate, malls catch the fancy of private equity players

After a lull, malls have seen renewed interest from private equity (PE) investors since the last couple of years, with industry watchers expecting the momentum to continue in 2019. 

Larger planned premium properties coupled with consolidation among smaller players have been able to boost PE investments further.

According to Venture Intelligence data, announced PE investments in malls in India rose by nearly 60 per cent in 2017 to Rs 2,299 crore against Rs 1,467 crore in 2016. Industry watchers estimate a similar growth in 2018.

The investments have come on the back of larger premium properties announced not just in Metros but also in tier 2 and 3 cities. According to Venture Intelligence data, in terms of regions, Chandigarh attracted the highest investment at Rs 1,101 crore from 2015 to year-to-date (YTD), followed by Mumbai at Rs 1,052 crore, Hyderabad at Rs 1,017 crore and Bengaluru at Rs 772 crore. 

The investment trend is likely to continue in 2019 with Warburg Pincus recently announcing a $200 million or Rs 1,300 crore equity in its deal with the Runwal Group for developing malls in the country. 

As such, the retail sector, led by malls, will see increased traction from investors. For instance, the latest retail report by Anarock pegs institutional investment, including PEs, at $1.9 billion or Rs 13,000 crore roughly between 2015 and the first quarter of 2019. The investment trend has also boosted new mall supply which is set to touch 65 million sq ft (msf) by 2022-end.

“This new supply is also driven by the increasing interest of institutional investors — including PE players — who invested almost $1.9 billion in Indian retail between 2015 and Q1 2019. 

In fact, over 60 per cent of this investment corpus was infused in the last two years (2017 and 2018) alone, making these the best years for the retail segment in recent times. 

Notwithstanding the decline in deal activity in the second half of 2018 following the NBFC-induced liquidity crisis, the retail segment attracted investments of almost $115 million in just the first quarter of 2019,” said Anuj Kejriwal, managing director (MD) & chief executive officer (CEO) of Anarock Retail.

This is also because retail, especially malls as a sector, have emerged one of the most favoured asset classes for institutional investors in recent times. 

“PE players have moved to retail as an asset class. This has resulted in higher activity in the space. There are currently two types of investors in malls. One, who buys ready and built assets and another who partners an existing player for greenfield or brownfield properties,” said Shubhranshu Pani, MD, retail services & stressed asset management group (SAMG), JLL India.

Blackstone’s subsidiary Nexus Malls has been one such player which has been investing in existing properties in order to scale up.  

“Our strategy is not to spend time in developing greenfield mall properties. Rather, our core competencies lie in acquiring existing properties and managing as well as improving them. Blackstone currently owns nine malls with a total five million sq ft space. We are now looking at buying more properties across India and aim to double in the next one year,” Jayen Naik, senior vice-president, operations & projects, Nexus Malls, had told Business Standard earlier.

Meanwhile, region-wise, new mall supply in western India tops with 25 msf, followed by south India at 21.7 msf, north India at 11.9 msf and east India at 6.4 msf, as per the Anarock Retail report. Besides Metros, prominent tier 2 & 3 cities for retail growth include Ahmedabad, Amritsar, Baroda, Bhubaneshwar, Chandigarh, Cuttack, Dehradun, Goa, Guwahati, Indore, Kochi, Lucknow, Nagpur, Mysore, Surat, Rourkela, and Thiruvananthapuram.