Consumer expenditure is one of the major factors dominating Indian economy and it has made the retail real estate sector an intriguing choice for investments. We witnessed $70.75 million FDI investment in retail sector in the review period from October 2014 to September 2015. As the demand has outgrown supply and e-commerce has slightly waned, retail holds the best scope for diversifying portfolio and the trend rightly seems to be extending in India.
Reacting timely, real estate developers and global investors are being interested in pouring lump sums of investments to the retail industry. As a fair number of foreign business players are eyeing to expand their portfolio with Indian retain sector, developers have initiated their focus in developing new malls and also in accruing under-construction malls based on various prime locations. Several developers have decided to accrue land for retail development of both green field and brown field categories.
Though the residential sales consumption has picked up in the first half of the year, new launches have taken a hit all across the country. In this scenario, commercial real estate offers the best alternative for investments. Retail sector is the one gainful asset class of commercial realty, the other being office spaces. Government authorities have also significantly eased the FDI norms across retail sector to gain the attention of global investors.
In a recent move to provide momentum to the retail sector, Union Cabinet has also passed the Model Shop & Establishment Act, implying that the retail outlets can operate 24×7 throughout the year. This can be touted to bring more flexibility to retailers and malls as they can now fully stretch up to their potentials. The move is also likely to cause resistance to the fairly scoring e-commerce sector too.
Advantages of retail investments
- Income potential: Retail spaces can generate a significantly high annual income compared to other investments formats in real estate.
- More relationship: Since the owners or tenants are generally business oriented, investors can have better national/international business relationships depending on the area and project.
- Public attention: Since retail spaces always gain public attention, tenants need to maintain the quality of the leased area. This helps in less worry for property owners or investors.
- Flexible lease terms: Once leased, all the expenses, excluding the mortgage, are generally paid by lessee. As an investor you own one of the less maintained modules through retail spaces.