Retail records highest PE investments in H1 2016 since 2008

The first half of 2016 has witnessed the highest annual private equity (PE) investments in the retail sector with over Rs 3,350 crore being invested, compared to only Rs 250 crore invested in H1 2015, said property consultant Cushman and Wakefield. This is the highest annual PE investments made since 2008.

The jump was mainly attributed to factors such as improved leasing activity, relaxed government policies and positive economic outlook, coupled with confidence index rising among the institutional and PE investors towards investments in retail assets.

Anshul Jain, Managing Director, India, Cushman & Wakefield, said "The Indian retail market appears to have bottomed-out from its slack and is expected to grow in the coming years. In addition to consumer spend, which increased by 10% during last 12 months, E-commerce is also contributing majorly to the increased retail spending by Indian consumers."

"We are expecting to witness some e-commerce companies take up physical spaces in malls to reach out to a wider Indian audience. Retailers are also increasingly consolidating their operations by mergers and acquisitions to cut down competition, gain market share and capitalize on synergies to get better results for their bottom-lines. All of these trends are resulting in increased investments by financial institutions and PE funds in this asset class," Jain said.

Moreover, with the government clearing tax hurdles for Real Estate Investment Trusts (REIT), PE funds are increasingly exploring opportunities in the retail sector as the retail assets can also be listed under a REIT portfolio. The share of retail sector assets in cumulative PE investments in India has therefore, increased to 18% in H1 2016 as compared to 2% recorded in H1 2015.

H1 2016 also saw new mall supply increase to 4.8 million sft in H1 2016 from a mere 0.2 million sft in H1 2015. This is the highest half yearly supply in five years. Delhi-NCR accounted for the highest supply during H1 2016, followed by Pune and Mumbai. These new mall spaces are expected to provide quality spaces to retailers, and wider options for expansion across multiple cities.

Owing to completion of Mall of India, which is one of the largest malls in India, Delhi NCR accounted for 64% of the share in new supply during the first half of 2016. However, Delhi NCR also accounts for the second highest vacancy rate (20%), owing to over-supply of retail spaces in the market. Pune witnessed three malls becoming operational, spanning a total of 0.8 msf during H1 2016, while Mumbai witnessed 0.4 msf of mall space coming into supply. Delhi NCR and Mumbai remain the largest retail markets, accounting for 35% and 20% respectively of the mall stock across the top 8 cities in India. Bengaluru is the third largest market, accounting for about 12% of the total stock.

A total new supply of about 13 million sft across the top 8 cities is scheduled for completion until the end of 2018. Over 46% of this upcoming supply is located in Bengaluru and Chennai, split almost equally between the two cities. With the rise in demand and declining new supply, the vacancy rates are expected to taper over the next 1-2 years, creating a more balanced equation between demand and supply, the report said.

The organised retail space that was witnessing a slack for the past few years, seems to have shifted gears and is attracting retailers as well as investors. Higher investors' interest and anticipation of a revival of the retail sector is steering developers to focus on completing their under-construction malls, said the Cushman & Wakefield report.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.