Mall developers seek premium land to expand retail portfolio

Private equity (PE) funds and mall developers are seeking to acquire premium assets to expand their retail portfolios as quality shopping space remains limited.

Xander Group Inc., an emerging markets institutional investor; K. Raheja Constructions Pvt. Ltd, which owns the Infiniti malls in Mumbai; K. Raheja Corp.’s retail development arm Inorbit Malls India Pvt. Ltd, which runs Inorbit malls; and Phoenix Ltd that runs High Street Phoenix and Phoenix Marketcity are all scouting the market for potential acquisition targets.

Each of these firms is targeting developments with 500,000 sq. ft of retail space in good locations.

“There is a definite increase in interest from PE funds for high-quality retail assets. A lot of them have done residential, hotel, commercial, and now as they look to diversify their portfolio in the country, they are looking at retail,” said Pankaj Renjhen, managing director of retail services at real estate consulting firm Jones Lang LaSalle.

For instance, the Xander Group is looking at inorganic growth in the country to support the expansion of its retail platform under Virtuous Retail to rapidly gain scale. The company is looking at acquiring at least one centre each in Delhi, Ahmedabad, Hyderabad, Kolkata and Mumbai, said Ankit Samdariya, vice-president, Virtuous Retail.

These assets should be large properties of at least 500,000 sq. ft in size that could cost upwards of Rs.500 crore each, Samdariya said. “The location and size needs to be right,” he said.

The Xander Group has in the past committed to invest $600 million to expand Virtuous Retail, which has one operational mall in Surat and by mid-October will launch its second mall in Bengaluru. It also has projects in Pune and Chennai.

K. Raheja Constructions is evaluating properties in smaller cities such as Coimbatore and Indore that span at least 800,000-1 million sq. ft.

“We are looking at large properties as we want it to be a destination mall. As such properties are not readily available we are looking at projects that have got all their clearances and approvals to start constructions and will be ready for occupancy in the next three-four years,” said Mukesh Kumar, vice-president of Infiniti Mall.

The company currently has 1.2 million sq. ft in Malad and 260,000 sq. ft in Andheri, both in Mumbai, and is looking at acquiring at least three properties totalling 2.5 million sq. ft to add to its footprint, said Kumar.

To be sure, there are several distressed malls across the country that are up for sale or being considered for restructuring.

According to a 30 July note by Jones Lang LaSalle, at least 14 malls with a combined space of 3.5-4.5 million sq. ft are likely to withdraw from the market in the next 12 months.

Still, any wave of consolidation will only see takers for quality properties.

“There are just a few good products available in the market,” said Rajneesh Mahajan, executive director, Inorbit Malls, which has a little less than 4 million sq. ft of operational space right now and is looking at doubling its portfolio by adding another 4-5 million sq. ft in the next four-five years through a mix of new projects and acquisition of under-construction malls.

According to Mahajan, in India, mall development so far has taken place in a fragmented manner and there are a lot of single-property mall developers. This will change in the coming years as large institutional funds and big mall developers take prominent positions in the market.

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