There is a good chance that India's retail market may get its first REIT; what exactly are REITs, and how do they function in the retail sector?

Posted on: October 15, 2022
How technology is transforming Indian real estateThere is a good chance that India's retail market may get its first REIT; what exactly are REITs, and how do they function in the retail sector?

According to a study, institutional investors and developers in India are looking to monetise their space in shopping malls that generate rental income. As a result, India is expected to soon have its own Real Estate Investment Trust (REIT) of retail properties for the first time. According to the study on the retail real estate segment, institutional investment in the retail industry has been growing up since 2021, which may result in India obtaining its first REIT. This was one of the key takeaways from the report.

In its research, the real estate company JLL stated that investments of more than 862 million dollars had been made until 2021. (excluding portfolio deals). Numerous investors from all around the world are putting their money into the retail industry, either by purchasing a stake in already-existing assets or by using greenfield development platforms. "Investors seek high-quality Grade-A assets developed by reputable developers and have fewer vacancies." To secure timely returns and reasonable market rentals, investors favour properties that are leased rather than those that are sold via strata, "it stated.

Investors are purchasing real estate or building portfolios intending to sell their holdings on the public market through REITs. "Real estate investment trusts are relatively new in India, although they are becoming increasingly common in the office sector. It is anticipated that India will soon have its first retail REIT. The Indian retail industry is expected to attract additional institutional investment given the quality supply already in the pipeline and the new malls that prominent developers have announced".

As institutional investors develop portfolios of high-quality retail assets, the retail real estate investment trust (REIT) market is poised to make the next big move in the sector.

What exactly are REITs?

The Real Estate Investment Trust (REIT), a widely used financial instrument all over the world, was first implemented in India a few years ago to monetise rent-paying properties to entice investment in the country's real estate market. It helps unleash the enormous potential value of real estate assets and makes retail involvement possible. Embassy Office Parks REIT, Mindspace Business Parks REIT, and Brookfield India Real Estate Trust are the three real estate investment trusts (REITs) that are now listed on Indian stock markets. However, all of these REITs are comprised of leased office properties.

What exactly are retail real estate investment trusts (REITs)?

A form of real estate investment trust known as a retail REIT owns and operates retail assets in main commercial districts and affluent regions of a nation or a state. This real estate investment trust offers retail space for lease to businesses or tenants that wish to establish shopping malls, grocery stores, apparel shops, and other retail establishments. They generate revenue by leasing the buildings to the tenants mentioned above, who then pay the REIT firms rent monthly, quarterly, or annual. Retail real estate investment trusts (REITs) offer excellent potential for financial gain. They are common in many nations outside of the United States. The fact that retail real estate investment trusts (REITs) deliver 100 per cent of the rental revenue they receive to their investors is one of the main reasons they are such an appealing investment option.

The retail industry in India has very robust development potential to begin with, and it is anticipated that institutional investment would further augment this potential. This would improve the working environment of shopping malls by bringing greater transparency to the situation.