Home Retail $75-80 mn PE investment expected in retail real estate FY ’16

$75-80 mn PE investment expected in retail real estate FY ’16


FDI in retail trading increased to $70.75 million between October 2014 and September 2015…

Indian retail real estate attractive again for global investors
As of May 2016, the total PE investment into Indian retail real estate stood at USD 149 million or Rs 10 billion, beating all expectations

The retail sector can look forward to a more cheerful 2016, given some good initiatives taken by the Government. In 2015, single-brand retail saw relaxation in sourcing norms, which is expected to rack up FDI inflows in the times to come. Moreover, in the Budget 2016-17, 100% overseas capital was allowed in processed food retailing through the Foreign Investment Promotion Board (FIPB) route.

Already, the FDI inflow in retail trading increased between October 2014 and September 2015 to $70.75 million. This – coupled with economic stability, liberalisation of the FDI policy and improvement in the consumer sentiment – is expected to help global brands witness a very conducive environment for investment into Indian retail as well as sectors. Add to this the steady rise in shoppers’ desire to consume foreign brands due to increased brand awareness, and the scenario looks even more inviting.

As more and more global brands realise this, they are expected to enter India in 2016. This will make development of world-class malls, having superlative designs and ambience, the need of the hour. Retail real estate has been constantly evolving in response to changing consumer, brands and retailers’ preferences but the evolution is bound to become faster in the days ahead. This will lead to emergence of stronger retail real estate players, who may manage to get private equity (PE) investment in the coming years.

PE investment has been largely confined to a few retail players in India. In 2015, PE investment into retail properties alone was $ 39 million, and in 2016, it is expected to be in the range of $75-80 million.

Some of the brands that applied for FDI in 2015:

  • Damiani
  • Cartier
  • Mont Blanc
  • Forever Living Imports

Some of the foreign brands that entered India in 2015:

  • Carl’s Jr
  • H&M
  • Aeropostale
  • BCBG Max Azria
  • Gap
  • G Star Raw
  • Asics
  • Wendy’s
  • Barcelos
  • Jamie’s Italian
  • Juicy Couture

What else will happen in 2016?

In 2016, PE may also go into select mall investments, especially in under-represented markets or for buyout of mature assets. JLL was the first to say that single-brand retail companies will find more reason to explore the Indian market thanks to relaxation of sourcing norms and that technology-led retail will start entering in single brand retail store category in 2016. These companies will also be able to undertake e-Commerce business independently.

Moreover, as quality mall space is coming up with strong pre-commitments, it indicates that retailers continue to remain bullish about the long-term India consumption story. Retailers are already starting to experiment with the formats, sizes for the same brands – adapting to markets – as they start moving up the value chain.

At the same time, the lack of quality retail space will continue to cast its shadow in 2016. Retailers will have to redo their real estate strategy and adopt a flexible approach customised to different micro-markets. Investment by both home-grown and international brands will strengthen in tier-II and tier-III markets as they expand beyond Tier-I cities. Investment by large players will also be seen in 2016.

ABOUT THE AUTHOR: , Chairman & Country Head, . The views and ideas expressed in this article are his own.