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Rediff.com  » Business » It's raining malls in India this year

It's raining malls in India this year

June 09, 2018 09:55 IST

7.8 million square feet of mall space is under construction this year, the highest ever since 2011.
Raghavendra Kamath reports.

A security guard at a mall in Mumbai. Photograph: Danish Siddiqui/Reuters

Between 2018 and 2020 India is expected to see around 20 million square feet of space hitting the market. Photograph: Danish Siddiqui/Reuters

An estimated 7.8 million square feet of mall space is expected to come up this year, the highest ever supply since 2011, according to property consultancy JLL.

This is 40 per cent more compared to last year.

The next three years -- 2018 to 2020 -- are expected to see around 20 million sq ft of space hitting the market, JLL said.

 

MGF Metropolitan mall in New Delhi. Photograph: Adnan Abidi/Reuters

The evolving shopping scenario in Tier II and Tier III cities is driving the new supply. Photograph: Adnan Abidi/Reuters

Almost all the big developers such as DLF, Prestige, Brigade, Phoenix Mills, L&T, Nitesh Estates and a host of regional and local developers are building malls.

Blackstone-owned Nexus Malls is planning to add 2 million sq ft to its portfolio.

A Srinagar mall. Photograph: Fayaz Kabli/Reuters

Malls in Tier II cities like Srinagar have clearly become the favourites of private equity firms. Photograph: Fayaz Kabli/Reuters

Phoenix Mills, the country's largest mall owner, will double its portfolio of over 6 million sq ft.

L&T Realty, the real estate arm of L&T, is building four malls in Hyderabad.

Housekeeping at a mall in Mumbai. Photograph: Danish Siddiqui/Reuters.

Malls have seen investments of over $750 million in 2017, almost double of what the segment saw in 2016. Photograph: Danish Siddiqui/Reuters

Experts said the booming retail sector and evolving shopping scenario in Tier II and Tier III cities were driving the new supply.

Cricket fans watch the ICC Cricket World Cup final match between India and Sri Lanka, on a big screen inside a shopping mall in Kolkata. Photograph: Rupak De Chowdhuri/Reuters

40 per cent more mall space will come up in 2018 compared to last year. Photograph: Rupak De Chowdhuri/Reuters

According to JLL, the retail sector is estimated to grow to Rs 1 trillion by 2020, at a compound annual rate of 12 to 15 per cent.

Malls have seen investments of over $750 million in 2017, almost double of what the segment saw in 2016.

A NOIDA mall. Photograph: Parivartan Sharma/Reuters=

Malls saw an investment of over $750 million in 2017. Photograph: Parivartan Sharma/Reuters

"Encouraged by urbanisation, a young population and the rising proportion of nuclear families in urban locations, over 70 per cent of consumption growth in the next 15 years is expected from the population aged between 15 and 59 years. This, along with the opening up of the FDI route for retail brands, will boost investments," said Ramesh Nair, CEO and country head, JLL India.

A Kolkata mall. Photograph: Rupak De Chowdhuri/Reuters

Malls, like this Kolkata one, offer the best returns on investment compared to any other category of real estate. Photograph: Rupak De Chowdhuri/Reuters

"There is an acute shortage of mall space in the country and vacancy is at an all-time low. Very few malls have started operations in the last five years and mall developers are scouting for land as most of the land bank has been used up," said Rituraj Verma, partner at Nisus Finance Services.

A Mumbai mall. Photograph: Adeel Halim/Reuters.

The retail sector is estimated to grow to Rs 1 trillion by 2020. Photograph: Adeel Halim/Reuters

According to JLL, 2017 has seen some rationalisation of mall space.

The year saw withdrawal of nearly 5 million square feet of retail space with the closing down of 28 malls.

Verma cautions that whether all the malls that are supposed to be delivered this year will become operational remains to be seen.

"Developers have been affected by a slump in real estate and most malls are more likely to be completed in 2019," he said.

After office properties, malls have caught the fancy of private equity funds over the last couple of years.

Half the PE money has gone into Tier II and Tier III cities

An employee operates a floor cleaning machine in a Mumbai mall. Photograph: Vivek Prakash/Reuters

At the moment, there is an acute shortage of mall space. Photograph: Vivek Prakash/Reuters

Canada's largest pension fund manager CPPIB said it would invest an additional Rs 9.38 billion in Island Star Malls Developers, the mall investment platform it co-owns with Phoenix Mills.

The platform has bought land parcels in Pune and Bengaluru.

US-based PE giant Blackstone acquired eight malls in the last two years and a portfolio of over 5 million sq ft. It plans to take this to 7 million sq ft. It has a set up a separate company, Nexus Malls, to operate these malls.

Shoppers walk past a store at a mall in Mumbai. Photograph: Danish Siddiqui/Reuters

A Phoenix Mills mall in Mumbai. Phoenix Mills is the country's largest mall owner. Photograph: Danish Siddiqui/Reuters

"Malls offer the best returns on investment compared to any other category of real estate, hence the PE interest in malls will always be high," said Susil Dungarwal, founder and chief mall mechanic at Beyond Squarefeet.

Balaji Rao, managing partner for Axis Asset Management company, said a successful mall offers better rental yield than an office complex.

"An office building offers yield of 8% to 9% while a good mall offers 9% to 10%," he said.

Shoppers walk past a store at a mall in Mumbai. Photograph: Danish Siddiqui/Reuters

Mall growth is seen more Tier II and Tier III with land becoming unaffordable in Tier I cities, like this mall in Mumbai. Photograph: Danish Siddiqui/Reuters

Malls in Tier II cities have clearly become the favourites of PE firms.

Blackstone has bought malls such as AlphaOne in Ahmedabad, Elante in Chandigarh and Treasure Island in Indore. It also owns a 50 per cent stake in a Pune mall.

According to sources, it is exploring new opportunities in Tier II cities in the northern and southern parts of the country.

In May this year, Virtuous Retail South Asia, a joint venture between Xander and Dutch pension fund APG, bought a 2 million sq ft mall in Chandigarh called the North Country Mall from Sun Apollo-Gumberg for Rs 7 billion.

People arrange tiles of a heart-shaped puzzle during an event to promote Valentine's Day celebrations, inside a mall in Bengaluru. Photograph: Abhishek N Chinnappa/Reuters

Experts feel over 70 per cent of consumption growth in the next 15 years is expected from the population aged between 15 and 59 years. Photograph: Abhishek N Chinnappa/Reuters

"We have always believed in the potential of these cities. Which is why our very first centre in India was in Surat. A rich city with a proud heritage and history, 75 per cent of the population is below 30, GDP growing rapidly with increasing aspiration levels and limited organised retail," said Sid Yog, founder at Xander Group, said earlier.

A cleaner pushes a trolley as customers eat at the foodcourt of a shopping mall in Mumbai. Photograph: Vivek Prakash/Reuters

The big developers like DLF, Prestige, Brigade, Phoenix Mills, L&T, Nitesh Estates and a host of regional and local developers are building malls. Photograph: Vivek Prakash/Reuters

"The reason (for PE flows in malls in Tier II and Tier III cities) is that land is now unaffordable in most Tier I cities," added Verma,"and thus viability of malls is far better in smaller towns."

Raghavendra Kamath
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