India’s Retail Market Likely to Get Its First REIT; What are REITs, How do They Work in Retail?

India is likely to soon get its own Real Estate Investment Trust (REIT) of retail assets for the first time as institutional investors and developers look to monetise their rent-yielding space in shopping malls, as per a report. The report on retail real estate segment highlighted that institutional investment in the retail sector has been picking up since 2021, which may result in India getting its first REIT.

Property consultant JLL in its report said that more than $862 million investments have come from 2021 (excluding portfolio deals). Many global investors are investing in the retail sector either by buying a stake in existing assets or through greenfield development platforms. “Investors are looking for quality Grade A assets by established developers having less vacancy. Investors prefer leased-based assets over strata-sold assets to ensure fair market rentals and timely returns,” it said.

Investors are either buying or creating portfolios considering future public exit via REITs. “REITs are still relatively new in India and are prevalent in the office sector. India is expected to get its first retail REIT soon. With quality supply in the pipeline and new malls announced by established developers, the Indian retail sector is expected to attract more institutional investment,” JLL India said.

REITs in retail will be the next big move in the sector as institutional investors are building portfolios of superior-grade retail assets, it added.

What are REITs?

REIT, a popular instrument globally, was introduced in India a few years ago to attract investment in the real estate sector by monetising rent-yielding assets. It helps unlock the massive value of real estate assets and enable retail participation. At present, there are three listed REITs – Embassy Office Parks REIT, Mindspace Business Parks REIT and Brookfield India Real Estate Trust – on Indian stock exchanges but all these are of leased office assets.

What are REITs in the Retail Sector?

Retail REIT is a type of REIT that owns and manages retail properties in upmarket areas and key business districts of a state or a country. This REIT leases retail space to companies or tenants who want to set up shopping malls, grocery stores, clothing shops etc. They make money by leasing the properties to these tenants who pay rent monthly, quarterly, or annually to the REIT companies. REITs in the retail sector are great investment opportunities and are popular in other countries like the United States. All the rental income collected by retail REITs are distributed among investors, which makes it such an attractive investment option.

The inherent growth potential of the retail sector in India is quite robust, and institutional investment is expected to increase it further. This would bring more transparency and improvement in the operating environment of shopping malls, JLL India said.

(With PTI inputs)

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