Investment in Malls & Retail Real Estate– Sentiments positive, time for I-REITs?

India’s GDP growth is amongst the fastest in the world, organised retail is growing at over 20% per annum, the country has moved a step higher on the global FDI confidence index and top brands-retailers seem eager to open shop in this diverse and interesting market – this should explain why PE investors now seem more interested in the retail rea estate sector.

When a sector starts attracting investment in the form of private equity (PE), especially through foreign direct investment by global firms, it indicates that the mid to long term prospects of the industry is certainly bright. The past three years have seen PE firms investing substantially in Indian retail real estate, especially in superior malls across major urban centres – about Rs.10,000 crore has been invested during 2015-17, and 93% of this is in the form of pure equity, as per JLL India reports. It is also significant to note that more than 58% of this investment has been in malls in Tier-II cities –the growth potential in smaller cities.


India has moved a step higher in the A.T. Kearney FDI Confidence Index 2017, ranking eighth with a score of 1.68 as against ninth rank with 1.60 score last year. It is notable that the FDI Confidence Index ranking has declined with respect to countries like China (3), Canada (5) and Australia (9). This index is a direct outcome of high growth in GDP, as also private final consumption and retail. Adding to it, theIndian retail sector has emerged as one of the fastest growing markets across the world and ranks number one in A.T. Kearney 2017 Global Retail Development Index.

“Over the past two years, India’s retail market has garnered significant investor interest,” says Anshuman Magazine, Chairman, India and South East Asia, CBRE and adds, “Favorable policy reforms, increasing transparency and ease of doing business, coupled with rising  disposable incomes and increasing globalization, has led to demand for retail picking up.”


Nature & flow of PE investments

About 40% of the total PE investments in Indian real estate in the year 2017 was in the IT and office and retail space, which is a 10% increase over its share in the previous year. Share of residential and township projects in total PE investment slipped down to 35% in 2017 as compared to 59% in 2016 – this was primarily on account of demonetisation. The share of warehousing and infrastructure assets witnessed a 9% growth in investments in 2017 as compared to previous year.

PE investments include (a) platform and entity-level deals and (b) acquisition of stakes in leading malls. The former are done in the form of strategic retail partnerships and are expected to see more traction in the near future. In this case, investors make the selection on basis of business track record of a developer and their operational processes. The global investing partner brings expertise in managing international retail assets and the local partner or the mall developer contributes in terms of market understanding and efficient ground staff.

Foreign investors started taking interest in Indian retail sector only after the November 2015 policy relaxation in FDI norms that allowed global investors to transact and invest in existing retail property, malls, and related assets. In January 2018 there was yet another policy announcement allowing 100% FDI through the automatic route in single brand retail and also in infrastructure projects, including retail real estate – these reforms have now become a prime enabler of easy finance-investment avenues in the Indian mall sector.

Optimism in Indian retail real estate

Investors in Indian malls are optimistic about 2018 as a year of good growth in consumption. As a result, many stalled retail real estate projects are now being expedited. Only six new malls became operational in 2017, whereas around 25 malls are expected to open up in 2018 and another nine ongoing projects will likely get completed by 2020. These upcoming 34 new malls together offer 136 lakh sq.ft. of leasable space. Besides these, we can also expect new project announcements.

Organised retail to touch US$166 B in 2025 – Retail sales were hit by demonetization in last quarter of 2016 and yet again by the implementation of GST in 2017. Yet global finance and investment analysts view these developments as yielding better dividends in future and expect bright prospects for the growth in retail market. Edelweiss Securities Ltd, forecasts that India’s organized retail market is set to zoom to $166 billion by FY 2025, from its current level of $60 billion in FY 2017. As per India Brand Equity Fund (IBEF) February 2018 Retail report, the overall India retail market stood at US $672 billion in 2017 and is expected to touch $1,100 billion by year 2020.

$3.6 trillion + consumer spending by 2020 – Consumer spending in India is expected to breach the level of US$3.6 trillion by 2020; then we have a liberal FDI regime that has opened the gates for many more global brands to enter India; city authorities are allowing a 24-hours shop time, and; we also have the McKinsey & Company-BoFThe State of Fashion 2018”report saying emerging markets across Asia-Pacific, including India will fuel the fashion retail market growth in coming years.

A.T. Kearney, has reported that currently total mall space in India is equal to about one-tenth of the mall space of the US market, despite India having a population that is four times larger than that of the USA. It is only natural then for private equity firms to see strong potential in the retail real estate sector, especially in high quality retail entertainment malls.

Global retail brands expanding India footprint – “According to our research, there were more than 180 entries / expansions by prominent global brands in 2016,” says Anshuman Magazine of CBRE, and adds, “This growing potential has attracted private equity players as well. During 2016 the segment witnessed investment of USD 0.7 billion from PE firms and wealth funds. In 2017, investments into retail increased by 15% to touch USD 0.8 billion and we also had numerous global brands entering the country. Most of this investment has been recorded in Gurgaon, Mumbai, New Delhi and Bangalore. Select quality developments in smaller cities like Chandigarh and Indore have also garnered investments.”

Renowned global retail brands including the likes of Ikea, H&M, Aeropostale and GAP are planning to set footprints across the country. Ikea India Pvt Ltd had previously committed an investment of Rs.10,500 crore for setting up 25 stores and experience centres in India, but this amount is now revised to over Rs.20,000 crore; why? Because “India is more interesting than we thought,” says Patrik Antoni, Deputy Country Manager, Ikea India.

Each large Ikea store typically requires about Rs.1,000 crore of investment. Its first Indian store will be functional in mid-2018 in Hyderabad, followed by the second one in Navi Mumbai in 2019 – this second store will display over 9,500 products spread across 430,000 sq.ft shop floor and is expected to serve 40 lakh walk-ins per year. The projects will be on company-owned land as it gives the retailer greater control over the business environment, say company sources. The entity has so far purchased land in Hyderabad, Bengaluru, Mumbai and New Delhi, and is exploring more options in Pune, Surat, Ahmedabad, Chennai and Kolkata.

Another high-end furniture chain Roche Bobois of France, after having marked its presence in Delhi, Mumbai and Bengaluru, now plans setting up more outlets in cities like Hyderabad, Chennai, Pune, Kolkata and Ahmedabad, and wants to develop India as one of its top markets by 2022.

Like Metro AG, Walmart India too is working on India expansion strategy through its cash-and-carry format. Following UK wholesaler Booker Group, Thailand’s Sam Makro becomes the latest entrant in this wholesale space. Swiss luxury retailer Bally, New York based designer brand Kate Spade also have plans for expanding presence in India through partnerships with established Indian retail entities like Future Group and Reliance Brands.

Major Investor Firms

The process of equity investment or acquisition of malls in India started around 2015. One of the early movers was Nitesh Estates – Goldman Sachs partnership that acquired the Koregaon Park Plaza Mall, Pune from Elbit Imaging in 2015. In the same year we had the Carnival Group taking up stake in Elante Mall, Chandigarh from construction major L&T Realty. Then in 2016 India’s leading insurer GIC Ltd acquired 50% stake in Viviana Mall, Mumbai from Sheth Corp. “Investment firms now control approximately 150 to 160 lakh sq.ft quality mall space, ” says Sanjay Dutt.

Anshuman Magazine says, “As of now, some of the key investments firms in this space include Virtuous Retail, GIC and Blackstone. It is not only sovereign wealth funds who are investing into India’s retail growth story, property funds and even developers are recognizing the potential of the sector and making focused investments.”

There is widespread apprehensions that due to rising popularity of e-commerce in India, mall business will substantially decline. However, Anuj Puri, Chairman, Anarock Property Consultants disagrees and says malls are becoming more attractive for investors: “Shopping malls are witnessing a visible resurgence in India, and a clear measure of the increasing focus on retail sector is that private equity (PE) players invested more than $700 million into Indian retail real estate in Q1-Q3 of 2017, which is around 90% of the total investment that came in earlier 2 years.”

Some of the leading firms currently investing in Indian malls are listed below:

Nexus Malls – Blackstone Group

In 2017 the Blackstone Group LLP’s India subsidiary Nexus Malls increased its portfolio of mall space from 28 lakh sq.ft to 50 lakh sq.ft across eight malls. About four more malls are likely to be added in 2018. Blackstone owns over 1,000 malls across the US, Europe and Asia Pacific. In India, the Group was primarily acquiring office property till early 2016 and as a single entity it controls the largest commercial space portfolio in the country.

Nexus Malls portfolio includes stakes in successful malls like Mall of Amritsar and Ahmedabad One from Alpha-G Corp in 2015, 50% stake in Westend Mall, Pune from Suma Shilp in 2016 for Rs.600 crore, over 10 lakh sq.ft retail space comprising Seawoods Grand Central mall, Navi Mumbai from L&T Realty in 2016 for Rs.1,450 crore, Elante Mall, Chandigarh from Carnival Group in 2017, 70% stake in Treasure Island Next and 50% stake in Treasure Island, Indore from Manish Kalani & Partner in 2017, and so on.

Nexus Malls plans to increase its presence from existing 4 cities to about 10-12 cities and as per reports the investment in acquisition of additional malls would range between Rs.5,000 to 7,000 crore over next one year. Focus of Nexus Malls is on acquiring existing single-owner properties, renovate it suitably to have world class amenities and infrastructure, and then manage the mall professionally. While setting global standards in mall management, Nexus is ensuring efficient cost management with regards to power consumption, besides emphasizing on cleanliness, hygiene, maintenance of building and critical equipment and providing larger parking space. In some cases re-designing of malls is done with a view to providing more consumer space.

VRSA – Xander Group – APG Asset Management

In November 2017, Dutch pension fund asset manager APG Asset Management NV invested $175 million in Virtuous Retail South Asia Pte Ltd (VRSA) for acquisitions and new project developments. VRSA is a joint venture with Xander Group Inc. Earlier in 2016 VRSA acquired the now re-christened VR Bangalore, VR Surat and a third mall in Chennai with an investment of $300 million.1 The Chennai mall is expected to be operational in April-May 2018. This firm also acquired the North Country Mall, Mohali from Sun Apolo – Gumberg in year 2017.

VRSA is now planning some large transactions in Hyderabad, Kolkata, Delhi and Mumbai over the next two years. It is exploring properties with a view to buying out a couple of operational malls and also some under-construction ones where construction was stalled for various reasons, including paucity of funds.


Mall developer Phoenix Mills Ltd and Canada Pension Plan Investment Board (CPPIB) joined hands to form a strategic investment platform for development of greenfield and brownfield retail-led assets in India. CPPIB initially took 30% stake in Island Star Mall Developers (ISMDPL), a Phoenix Mills subsidiary that owns Phoenix Market City Bangalore­ – this firm now serves as the platform for this alliance.

The partnership is in talks to acquire by mid-2018 four large land blocks for building new retail real estate complexes. This is besides a 400,000 sq.ft land block it plans to add to its 10 lakh square feet operational mall in Bengaluru. Between April-September 2017 the investment firm is reported to have achieved Rs.3,000 crore of sales from its operational malls, as compared to Rs.5,800 crore in completed FY 2016-17.2


This partnership was formed in April 2017, when the Canadian realty investor committed $250 million in a unit of Phoenix Mills. Since then, they have already bought a 15-Acre land parcel in Wakad, Pune for Rs.225 crore from Kolte Patil Developers. This land has a development potential of 16 lakh sq.ft of which approximately 10 lakh sq.ft will house a new mall, its second in the city. It will invest another Rs.500 crore in construction of the project. About 6 lakh sq.ft of this will be devoted to convention centre, hotel and office space. ISMDPL has also acquired a partly-constructed mall in Indore for Rs.230 crore. In total, the investment partnership controls about 60 lakh sq.ft portfolio and has plans to double it in the next five years.

Prestige Group

Prestige Group, which mastered the art of developing and managing premium malls from its The Forum mall at Koramangala, Bengaluru, recently bought the stake of realty investor CapitaLand in various shopping mall projects with an initial investment of Rs.342 crore. It will soon be relaunching a rebranded mall in Udaipur that was acquired in this transaction. Prestige also launched its first Mysuru mall in January 2018, and in all likelihood this year will see addition of another new mall in Bengaluru to its portfolio.

Mumbai based Oberoi Realty is reportedly exploring investors to either set up a platform or to partner with them on project-to-project level. It has set up a separate mall vertical and is building two malls in Mumbai, investing $200 million to $250 million, in addition to one mall it already operates.

DLF Ltd is another major player in the business of developing and managing malls with varied positionings. The company recently unveiled Chanakya mall, which is in the same league as its operational DLF Emporio mall at Vasant Kunj area of New Delhi. One more premium mall is expected to be completed in 2018.


Brigade Enterprises Ltd is exploring suitable land to add one new mall every alternate year. K. Raheja Corp, is planning to double its retail portfolio of InOrbit chain of malls to five million sq.ft of fresh leasing space in the next 2-3 years.

Ground is ripe for REITs in India

The law for creation of Indian Real estate investment trusts (I-REITs) was approved by the NDA government in August 2014, which intends to help individual investors enjoy the benefits of owning an interest in the securitised realty market and being able to liquidate the same fast & easy when required. REITs are listed companies that will primarily invest in leased office and retail assets, own the same and, if necessary also operate it. The two main types of REITs are equity REITs and mortgage REITs.

Mall projects require infusion of huge funds, 5-7 years of construction period and another 2-3 years in stabilising the business; few developers can afford to stay invested that long. At the same time, supply of mall space must keep pace with the ever-increasing demand for quality space from premium national and international brands.

As per JLL India sources, nearly 720 malls have been built in India in the last 17 years but only 99 of them are of superior quality. Mall supply over the years has drastically reduced, while demand is 10-15 million sq.ft per year, supply is only about 5-7 million sq.ft. This is where REITs come in handy, they allow developers to raise funds by selling completed buildings or selling high stakes in the same.


“Marquee investment and pension funds from across the globe have shown an increasing interest in retail real estate as they bet on long-term gains from the country’s rapidly growing consumer economy,” says Sanjay Dutt, CEO Operations & Private Funds, Ascendas-Singbridge India: “Most mall developers requiring infusion of more funds for new projects or redevelopment of existing ones are therefore waiting for a REIT. Increasing participation from foreign and private players is likely to boost both, the creation of retail infrastructure, and the supply of quality malls with around 120 lakh sq.ft expected to come up in 2019.”



REIT as an investment vehicle has a huge opportunity in India as the country has a rent yielding office inventory to the tune of 537 million sq.ft, which includes properties like retail malls, shopping centres and warehousing, etc. – all potential REIT assets. “Various REITs are under planning stage and we expect the first one in India to be rolled out in 2018-19,” adds Dutt.

The mismatch between demand and supply of quality retail space is one of the reasons why retail rent in better performing malls has risen by about 20% over the past couple of years. Shopping centre yields in India are about 11% compared with 4.9% in Singapore and 4% in London, as per JLL India. For PE investors and REITs, the situation promises faster rental growth and hence higher yields from investment.

“With REIT’s coming in, the investment environment for retail will continue to be positive,” says Anshuman Magazine of CBRE and adds, “It will facilitate the development of better quality assets that are well managed and strategically leased out. This in turn will result in better return on investments for funds and investors thus attracting more capital inflows into the sector.”


  1. Shopping malls catch the fancy of realty investors, By Madhurima N. and Bidya S.,, 26 Dec 2016
  2. Investors developers look to buy out malls & land to expand, By Madhurima N. and Deepti G.,, 22 Jan 2018