NRI investors can find a lot of value to unlock in India's mall developments. Image Credit: Agency

With 100 new malls spread over 49 million square feet expected to come up by 2022 across India, commercial investments in retail and mall spaces are gaining traction among NRI investors.

The average ticket size for commercial real estate starts from as low as 1.4 million rupees, and hence becomes affordable for most segments of the NRI population. Commercial assets come with 8-10 per cent rental yield, which is significantly higher than the 3 per cent return on residential properties.

Apart from the investment sentiment, this trend is noteworthy for consumers as well, as it points towards the bullish sentiment of mall developers towards the growth of consumer spending in organised retail.

Still gaining

The Indian retail industry was worth $950 billion in 2018 and expected to touch $1.1 trillion this year. Organised retail contributes close to 15 per cent of this. However, this share is growing at a substantial pace because of the change in customer preferences.

Indian shoppers are now looking for different options apart from the mom-and-pop stores they used to frequent in the past. The confidence shown by foreign investors is evident from the fact that PE (private equity) inflow in Indian retail reached record highs in 2019.

Of the total $5 billion inflows for overall real estate sector, 19 per cent of the funds were directed to retail developments. It is interesting to note that Delhi-NCR received a whopping 63 per cent of these funds.

The high RoI (return on investment) on malls is one of the major factors why investors have favoured this asset class.

Grabbing the most

Of the 100 new malls coming up in India, the lion’s share is taken by the Top 7 cities, which account for 69 of them and have a combined area close to 35.5 million square feet. Tier 2 and 3 cities like Ahmedabad, Surat, Lucknow, Indore will be seeing 31 malls, accounting for 13.5 million square feet of new organised retail spaces.

Delhi’s NCR (National Capital Region) itself will see 13 new malls come up by 2022-end with a combined area of 7.5 million square feet.

Over the years, the main factors for malls being successful were location and the presence of top brands and well-known retailers. Today, with increased competition, other factors like residential catchment quality and connectivity are used to determine the viability of a mall project.

The key decision metrics for investors should be:

• Location;

• Adequate on-site parking availability;

• Developer credentials and area potential for future infrastructure enhancement;

• Catchment dynamics, footfall and consumer spending in the neighbourhood needs to be checked.

However, notwithstanding commercial property investments’ unquestionable lucrative benefits, they call for a different investor profile. Even the most experienced commercial investors depend on reliable property consultancies to identify the right portfolio of products.

For NRIs seeking alternate low-ticket size, high yield options, this category is an ideal solution to compensate for the almost negligible returns that housing has yielded in the last 5-6 years.

With absorption of commercial real estate at all-time high, NRI investors should waste no time to identify safe, secure and high yield products in this segment and generate significant returns on their investments.

- Shajai Jacob is CEO — GCC (Middle East), Anarock Property Consultants.