After carnage in the retail sector due to the Covid-19 crisis, the bullish retail asset funds have turned cautious as they believe that the shopping centres will be the last real estate asset class to recover from the pandemic impact.
Investment platforms for retail assets like CPPIB-Phoenix Mills,Warburg Pincus-Runwal, APG-Xander and Blackstone-backed Nexus are now studying carefully the impact of pandemic on retail assets and reassessing their investment thesis.
There have been no investments in retail space in 2020 till date, according to the Knight Frank report, whereas the segment had witnessed investments worth $397 million in the Jan-May 2019.
The segment is expected to take at least 12 months to recover and due to consumers' low propensity to spend, footfalls are likely to be low even after malls are fully operationalised.
“The year 2020 appears to be a bleak year for the retail segment and may not witness much investor activity over the next 12 months. Investors are now associating much greater risk with retail assets compared to office. They are also accounting for longer periods of no rentals or lower rentals in their financial models in the near term on account of revenue share arrangements,” said Shishir Baijal, Chairman, Managing Director, Knight Frank India.
Some of the large funds raised to invest in the retail segment includes APG-Xander Rs 3,000 crore retail vehicle, CPPIB-Phoenix Mills Rs 1,662 crore fund and the Warburg Pincus-Runwal Group Rs 3500 crore retail platform.
According to JLL India, the retail segment received investment worth Rs 4,100 crore in 2019 as compared to Rs 2,455 crore in 2018.
"Retail sector has experienced good growth in terms of institutional investment in the last three years. However, with the onset of Covid-19 pandemic, this asset class has been one of the worst hit. In the short run, we expect a slow growth trajectory and capital flow will follow suit,” said Samantak Das chief economist and head - Research and REIS, JLL India.
Lower investor appetite, rental de-growth on account of revenue share and heightened risk perceptions along with higher cap rates compared to other assets like office space make retail assets an un-attractive investment proposition under current economic circumstances.
“Some of the active discussions have been put on hold due to extreme uncertainties. We are closely monitoring the existing portfolio,” said a fund manager from one of the platforms who did not wish to be named.
The pandemic is also expected to delay REIT possibilities of 26.6 mn sq ft space till the time capital markets bounce back.
“Many brands have decided not to pay the rent and are looking for a huge waiver. This will have a huge impact on cash flows as the loan moratorium extended by the government is not a waiver but is a deferment” said another fund manager.
The Shopping Centres Association of India (SCAI) has said that over the last two months, the organisedretail industryhas suffered losses of over Rs 90,000 crore and large-scale unemployment is a real possibility in the absence of financial relief and government support.
Amitabh Taneja, Chairman, Shopping Centres Association of India said, "The organised retail industry is in distress and has not earned a dime since the lockdown and their survival is at stake. While the extension of the loan moratorium talks about some relief on repayment but won’t help the industry in liquidity”.
As per SCAI, there are more than 650 large malls and over 1000 malls. Additionally Rs 27,000 crore worth retail projects are in the pipeline and under construction stage.
June 15, 2020
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