With retail demand and investor interest up, India set to get bigger malls

High interest from investors, along with comfortable balance sheets, is expected to keep credit risk profiles of mall owners stable, says CRISIL

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India is set to get bigger malls in the coming 3-4 years. Owing to a strong recovery in retail sales, the mall area in India is expected to increase by 30-35 million square feet (msf), over one-third of the current stock during the period, rating agency CRISIL said in a release on Wednesday.

CRISIL said the retail recovery is expected to sustain, as broad-based consumption across geographies as well as sectors fortifies demand resilience. "In fact, revenue of mall owners for this fiscal is estimated at 125 per cent of the pre-pandemic level," it said.

According to Anshuman Magazine, chairman and chief executive officer (India, South-East Asia, Middle East & Africa) at CBRE in the next two years, at least 10-12 msf of Grade A shopping mall space is expected to become operational.  

As per the rating agencyl, another factor for the increase in demand for mall space is the jump in consumption in tier 2 cities. According to the release, these cities are garnering around 25 per cent of the total upcoming mall area.

The expansion in the mall area has also been attributed to an increasing interest by investors such as private equity, global pension funds and sovereign wealth funds. CRISIL said that 15-20 per cent of the investment in new supply will be led by these investors.

"Malls are expected to attract investment of more than Rs 20,000 crore over the next 3-4 years," said Anand Kulkarni, director at CRISIL Ratings.

"The reasons for the sizeable supply addition are twofold: one, resumption of work on new supply, which was stalled during the pandemic due to uncertainty regarding the timeline of recovery. And two, robust retail sales at malls and the consequent strong operating performance of mall owners in the current as well as last fiscal."

"Post-pandemic, sales have risen tremendously in top malls, and retailers are in major expansion mode. Even online brands are now increasingly entering brick-and-mortar store formats," Pankaj Renjhen, chief operating officer and joint managing director at Anarock Retail, told Business Standard.

"As such, we have every reason to expect major growth on all fronts, both in terms of supply and absorption of Grade A malls across the key markets."

Malls in India are also witnessing high occupancy due to the return of retail demand.

"Mall owners are likely to report a second consecutive year of high performance this year, with revenue growth of 7-9 per cent, following the robust 60 per cent growth last fiscal. This strong performance has helped malls sustain healthy occupancy of 95 per cent," added Saina Kathawala, associate director at CRISIL Ratings.

CRISIL added that high interest from investors, along with comfortable balance sheets, will keep the credit risk profiles of mall owners stable despite the sizeable capital expenditure (capex) plans.

The ratio of debt to earnings before interest, taxes, depreciation, and amortisation (EBITDA) is expected to be three times this year, better than 3.2 times last year.