Retail REITs set to grow as institutional investors back new malls

Anarock says institutional investors now hold stakes in over 30% of malls, with upcoming Grade A launches and GST reforms driving new retail-focused REIT activity

At least two to three new retail-focused Real Estate Investment Trusts (Reits) are likely to launch soon on the back of more malls getting institutional investments, according to a report by real estate consultancy firm Anarock.

 

This comes even as India’s retail space is being increasingly driven by institutional players, with 30-35 per cent of the 650 operational malls in the country now seeing such investments.

 

With 45 new malls having a pipeline of over 42.5 million square feet (msf) of prime retail space for the next three-five years, top players such as Nexus Malls (Blackstone), Phoenix Mills, DLF, Lakeshore, Raheja Group and Pacific are likely to be key gainers.

 

Anarock added that new mall launches will further fuel Reit activity, indicating a strong move towards bigger and better branded malls.

 

“Going forward, new malls will take up an average of 1 to 1.2 msf space while 30 to 40 per cent small malls may get repurposed into mixed-use projects,” the report stated. 

 

It stated that only Grade A malls are seeing a positive rental growth at 5-8 per cent compound annual growth rate (CAGR), compared to stagnant or declining rents in Grade B and C malls.

 

Between 2005 and 2015, over 250 malls were built across India, riding the organised retail boom. However, about 20 to 22 per cent of these malls either shut down, or were repositioned, or converted to other uses from 2015-2020.

 

“This happened as vacancy rates in inferior malls crossed 30 to 35 per cent, leading to financial distress,” the report stated. 

 

On the other hand, Grade A malls have risen from just 22 per cent of the inventory in the top 7 cities in 2015 to a projected 60 per cent by 2027. Vacancies too, have reduced from 19 per cent to approximately 9 per cent, a sign of improving quality and demand.

 

The report adds that changes in the goods and services tax (GST) regime would simplify the tax structure for real estate, amplifying the push towards higher transparency and efficiency in the segment, which further welcomes institutional investment. 

 

For institutional retail spaces, this results in reduced compliance costs and streamlined tax payments, boosting both cash flows and investor confidence. 

 

“These tax revisions also impact under-construction commercial properties, where GST rates and input tax credits (ITC) are key factors,” Anuj Kejriwal, chief executive officer (CEO) and managing director (MD) of Anarock Retail said.  

 

He added that the move would result in significantly improved shopper confidence and purchasing power. “It will boost spending on premium and branded products, and with uniform taxes across states, shoppers will benefit from more consistent pricing,”  Kejriwal said.