For the first time, India is likely to get its own Real Estate Investment Trust (REIT) of retail assets. According to a JLL report, institutional investors and developers are looking to monetize their rent-paying space in shopping malls.
Real Estate Investment Trusts are similar to mutual funds. They pool money from multiple investors and use it to purchase income-generating real estate properties. REITs manage these assets to profit from both capital appreciation and rental income.
A retail REIT leases retail space to companies or tenants who want to set up shopping malls, grocery stores or clothing shops. These REITs generate revenue by leasing the properties to tenants who pay rent monthly, quarterly, or annually to the REIT companies.
Presently, in India, there are three listed REITs: Embassy Office Parks REIT, Mindspace Business Parks REIT, and Brookfield India Real Estate Trust, all on Indian stock exchanges but they all comprise leased office assets.
REITs have a similar structure to that of mutual funds with a sponsor, fund management company and a trustee. The sponsor promotes the REIT with its funds, and the fund management company selects and buys properties for the portfolio. The trustee ensures that the funds collected are utilized and managed while keeping the investor’s interest in mind. Through REITs, investors gain by earning regular income in the form of dividends and can also diversify their investment portfolio.
The retail real estate segment has seen a rise in institutional investment since 2021. More than USD 862 million in investments have come from 2021 (excluding portfolio deals). With the presence of quality supply in the pipeline and the emergence of new malls announced by established developers, the Indian retail sector is expected to attract more institutional investors as REITs are publicly traded like stocks, which makes them highly liquid, unlike traditional real estate investments.
The retail market is also benefitting from favourable demographics, rapid urbanization and increasing consumption not only in the metropolitan cities but also in Tier 2 and Tier 3 cities. The inherent growth potential of the retail sector in India is quite robust, and institutional investment is expected to increase it further. The encouraging commercial REIT trend in India could open up space for its expansion into residential, retail, and hospitality segments in the coming years. Also, with REITs getting directly linked to office and commercial real estate sentiment in India, they should be able to deliver beyond the promise of just monetizing rent-yielding assets eventually.