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Mall spaces in India to go up by 20 million sq. ft. in next three years: JLL

Mall spaces in India to go up by 20 million sqThe number of malls in India is set to increase on the back of rising consumption in brick-and-mortar stores and increasing private equity funding. As per JLL, an estimated 7.8 million sq. ft. of space has been procured to construct malls, the highest since 2011, and 40 per cent higher than 2017. JLL says the next three years could see around 20 million sq. ft. of mall space as all big developers such as DLF, Prestige, Brigade Phoenix Mills, L&T, Nitesh Estates and a host of regional and local developers are building new malls. While Blackstone-owned Nexus Malls is adding 2 million sq. ft. to its portfolio, Phoenix Mills, the largest mall owner, is looking to 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.

As per JLL, the retail sector is estimated to grow to Rs 1 trillion by 2020, at a CAGR of approximately 12-15 per cent. Malls have seen investments of over $750 million in 2017, almost double of what the segment saw in 2016. Ramesh Nair, CEO & Country Head, JLL India, says encouraged by urbanisation, young population and rising proportion of nuclear families in urban locations, over 70 per cent of consumption growth in the next 15 years is expected from population aged 15-59 years, with increased per capita consumption. This along with the opening up of the FDI route for retail brands entering into India, will further boost retail investments.Mall spaces in India to go up by 20 million sq. ft. in next three years

Rituraj Verma, Partner, Nisus Finance Services points out, there is an acute shortage of mall space in the country and vacancy is at a 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 they had has been used up. Having said that, developers have been impacted by a slump in real estate and most malls are more likely to be completed in 2019.

Sid Yog, Founder, Xander Group, observes real supply of well planned, well located, well-capitalised projects is far lower and the capability to operate when built makes the real operational supply likely to come on line even smaller. It takes 6-7 years to build a new mall of any scale/size. So these projects (if real) must have been planned in 2010-2011. They can’t have come up suddenly. It’s just that they are suddenly more visible in the media. Separately, six million sqft a year for the next three years is hardly much supply for a country the size of India with 10 major cities and 20 mid-sized cities.

JLL’s report indicates 2017 has seen some rationalisation of mall space as well. The year saw a withdrawal of nearly 5 million sqft of retail space with a closing down of 28 malls. Most of the rationalisation took place in the markets of Delhi – NCR and Mumbai owing to the fact that these markets have significant mall stocks with a considerable percentage of the same performing below par.

Private investors on the rise

Canada’s largest pension fund manager CPPIB in April said it would invest an additional Rs 9.38 billion into the Island Star Malls Developers, the mall investment platform it co-owns with The Phoenix Mills. The platform bought land parcels in Pune and Bengaluru. US PE giant Blackstone acquired eight malls in the past two years and a portfolio of over five million sqft. It plans to take it to seven million sqft. It has a set up a separate company, Nexus Malls, to operate these malls. Susil Dungarwal, founder & chief mall mechanic at Beyond Squarefeet, stated that shopping Malls offer the best returns on Investment compared to any other category of real estate, hence the PE/REIT interest in shopping malls shall always be high. The recent splurge of the PE/REIT in the sector is a testimony of the same.

Experts say, over half of PE money has been invested in Tier II cities. For instance, about half of Blackstone’s malls are in tier II cities. Blackstone bought malls such as AlphaOne Mall in Ahmedabad, Elante Mall in Chandigarh and Treasure Island Mall 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 part of the country.

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