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Retail sector has attracted INR 5,500 cr in PE since 2015: JLL India

· Close to INR 1000 cr of PE investment received by retail real estate in Q1 2018

· 90 new malls expected in next 5 years: 62% of new supply to be ‘Superior’

New Delhi, May 23, 2018: JLL, India’s largest real estate services firm, in its latest report said that the Indian retail sector has attracted a cumulative of INR 5,500 crores (cr) between 2015 – Q1 2018. Close to INR 1000 cr have been invested in the sector in Q1 2018 making it one of the best quarters for the sector in recent times. The report – Indian Retail: Stepping up the Game! was launched at the recently concluded CII Retail Conclave 2018. The steady increase in interest from private equity investment companies, has propelled developers of retail malls to re-evaluate their portfolio to include of 3 determining factors – Product, Catchment and Customer experience, which going forward would be the core of creating a successful retail space.

Private Equity Investments (2015 – Q1 2018)

Investments in Retail

Year

INR (Cr)

2015

800

2016

3,000

2017

700

2018 (YTD)

950

Source: JLL Research

Private equity investors have shown confidence in the future trends of Indian retail real estate and have started to make large value as well as long-term commitments towards the sector. The key criteria for choosing a property for investment have been the rental values, vacancy levels, tenant mix, design and quality of mall management, location and ownership. Basis these parameters, the report categorizes existing and future malls into Superior, Average and Poor.

It is estimated that the future pipeline of 5 years (2018 – 22) will be 90 malls spread over 34 million square feet (mn sq ft). Of the expected new malls, 62% will be in the category of Superior Malls while only 10% will remain in the poor category. About 28% malls in the next five years will be considered average. Most existing malls will also align to these categories by going into redevelopment, redesigning or changing their tenant mix. Certain properties may also choose to opt out of business, putting the real estate to alternate use.

Future Mall Pipeline for 5 Years (2018 – 22)

Quality

No. of malls

Estimated Vacancy

Superior

Average

17%

Poor

39%

Source: JLL Research

The report further estimates that vacancy would be inversely proportionate to the Grade / quality of the upcoming supply. While Superior grade malls are expected to see low vacancy of approximately 8%, average can expect to see vacancy levels of 17%. Poor grade malls will have vacancies touching 40% making them less business friendly for brands in the future.

Ramesh Nair, CEO & Country Head, JLL India says, “Developers are making use of past experiences and learnings to create and superior quality malls. Some of the key factors determining the success of malls will be design, varied tenant mix, strength of catchment, infrastructure, amenities etc. But an increasingly influencing factor will be the mall’s ability to counter shoppers’ expectation for ‘experience’. Out of the upcoming supply, the malls under the superior category will do well as they have the right fundamentals. We will continue to see stock consolidation as some of the weak properties will divert to non-retail uses like small offices, hospitals, educational, healthcare and survive.”