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1 Publication: Business Standard Date: Wednesday, 25 th April 2018 Headline: It will be raining malls over the next three years Weblink:

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3 It'll rain malls in India this year: 7.8 mn sq ft space under construction Experts say it is the booming retail sector and evolving shopping scenario in Tier-II and -III cities that is driving new supply Raghavendra Kamath Mumbai Last Updated at April 25, :52 IST Call it the impact of rising consumption at brick-and-mortar stores or private equity pouring in, it is going to rain malls in India this year: an estimated 7.8 million sq ft of space has been procured to construct them -- the most since 2011, and 40 per cent higher than 2017, according to property consultancy JLL. JLL said the next three years could see around 20 million sq ft of mall space hitting the market as 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 new malls. While Blackstone-owned Nexus Malls looking to add 2 million sq ft to its portfolio, Phoneix Mills, the largest mall owner, 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. Experts said it is the booming retail sector and evolving shopping scenario in tier II and III cities which are driving the new supply. According to JLL, the retail sector is estimated to grow to Rs 1 trillion by 2020, at a compound annual growth rate of approximately per cent. Malls have seen investments of over $ 750 million in 2017, almost double of what the segment saw in Encouraged by the 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 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, said Ramesh Nair, CEO and country head, JLL India. Rituraj Verma, the partner at Nisus Finance Services, said, There is an acute shortage of mall space in the country and vacancy is 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, Verma said.

4 In the past, property developers stayed away from malls post-2012 due to long gestation periods and several malls getting closed down because of poor performance. However, Verma cautions that whether all the malls that are supposed to be delivered this year actually get operational remains to be seen. Developers have been impacted by a slump in real estate and most malls are more likely to be completed in 2019, he added. Sid Yog, founder of Xander group has a different take to the mall story. Real supply of well planned, well located, well-capitalized 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 They can t have come up suddenly. It s just that they are suddenly more visible in the media. Separately, even if it happens which I don t will, six million sq ft a year for the next three years is hardly much supply for a country the size of India with 10 major cities and 20 midsized cities, he said. According to JLL, 2017 has seen some rationalization of mall space as well. The year 2017 saw a withdrawal of nearly 5 million sq ft 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. Huge PE interest Malls have also seen huge interest from private equity investors in the last couple of years. 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. The platform holds Phoenix MarketCity Bengaluru, which was Phoenix Mills contribution to the alliance and CPPIB invested Rs billion in multiple tranches, to own 49 per cent stake in the alliance. US PE giant Blackstone acquired eight malls in the past two years and a portfolio of over five million sq ft. It plans to take it to seven million sq ft. It has a set up a separate company, Nexus Malls, to operate these malls.

5 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, said Susil Dungarwal, founder and chief mall mechanic at Beyond Squarefeet. Balaji Rao, managing partner for real estate, Axis Asset Management company, said a successful mall offers better rental yield than an office complex. A office building offers yield of 8-9 per cent while a good mall offers 9-10 per cent, Rao said. Rao added investors were chasing malls that are well-formatted and -managed. Investors are also betting on shift of unorganised to organised retail in the country, he said. Going local According to experts, over half of PE money is going to 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. In May this year, Virtuous Retail South Asia (VRSA), a joint venture (JV) between Xander and Dutch pension fund APG, bought a two million sq ft mall in Chandigarh called the North Country Mall from Sun Apollo-Gumberg for Rs 7 billion. From Virtuous Retail s perspective, we have always believed in the potential of these cities. Which is why our very first centre in India was in the great city of 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 in an earlier interaction with Business Standard. Dungarwal at Beyond Squarefeet said,.. now malls have penetrated in tier I, II and II towns. The shopping culture of these towns is changing and consumers are getting more and more brand conscious." First Published: Wed, April :45 IST