PE funds betting on malls for higher rental yield, rising consumption

Recently, Warburg Pincus, a US-based private equity (PE) fund manager, along with Indian partner Runwal, announced plans to invest $1 billion (nearly Rs 7,000 crore) to build malls in this country.

Blackstone, its US counterpart, has already invested a similar amount to acquire malls; it has built a portfolio of nine. Global sovereign and pension funds such as ADIA, CPPIB, and APG have also invested over $1 billion in different mall investment and development joint ventures (JVs) in India. Very few exits have happened till date in this space, except Singapore’s CapitaLand exiting its JV with Prestige Estates in the south. 

PE funds seem to be betting on the attractive rental yields and appreciation in asset prices. Shobhit Agarwal, managing director of Anarock Capital, says malls offer a rental yield of 11 to 12 per cent annually; office properties give 8 per cent. Housing is the lowest, at 2 per cent or less.

Malls are also seeing appreciation of 8 to 10 per cent annually in asset prices.

“Mall rents go up 10-12 per cent every year, making it attractive for PE funds,” Agarwal said.

After office portfolios, malls are the next asset class in attraction. Most of the office portfolios are sold to PE funds. Blackstone has bought stakes in Embassy Office Parks, K Raheja’s office assets and others. Singapore’s GIC bought the DLF promoter stake in the latter’s rental arm and Canada’s Brookfield bought the Hiranandani family’s Powai assets and Unitech Corporate Park’s information technology Special Economic Zones.

Anish Saraf, managing director at Warburg Pincus India, adds: “With a growing middle class and expansion of branded retail, shopping malls present a meaningful opportunity to participate in India’s evolving consumption story.”

Organised retailing’s growth is set to double from 9 per cent to 18 per cent and online retail might grow from 3 per cent to 7 per cent in the next four years, according to Ashutosh Limaye, director, Anarock Consulting Services.

Anarock’s Agarwal says despite the threat of e-commerce, the mall attraction remains. “No new malls have been built in many years and even dead malls such as Atria in Mumbai have come alive. There is an acute shortage of malls and that has given them pricing power,” he said.

Over 50 malls had either shut down or been downgraded into mix-use centres in the past couple of years, Limaye said. The shortage is set to change. India’s retail space is set to rise to 120 million sq ft over the next three years, from 100 million at present.

Betting on footfalls

• Warburg Pincus, Runwal plan to invest $1 billion in malls
• Blackstone has bought nine malls for over $1 billion
• Xander, APG in $450-million JV 
• CPPIB, Phoenix Mills formed JV to buy malls
• GIC owns stakes in Viviana, R City in Mumbai