Reliance

Vornado, RIL team up for shopping centres
August 15, 2008,

The US-based real estate investment trust Vornado Realty Trust has announced an equal joint venture with the Mukesh Ambani-led Reliance Industries to acquire, develop and operate shopping malls in India. Both partners will invest $250 million (nearly Rs 1,000 crore) each in the JV.

“The shopping centers, spread over 5,00,000 to 10 lakh square feet or more, will be anchored by a hypermarket owned and operated by Reliance,” Vornado said.

The JV is expected to boost the expansion plans of RIL’s retail venture Reliance Retail, which operates 700 multiple-format stores across 60 cities, encompassing 3.5 million sqft.

Reliance Retail has announced ambitious plans to the tune of Rs 25,000 crore. The retailer runs neighbourhood store Reliance Fresh, consumer durable chain Reliance Digital, hypermarket chain Reliance Mart, apparel chain Reliance Trends and footwear chain Reliance Footprint.

The New York Stock Exchange-listed Vornado already has an exposure to the Indian realty market. The company has an aggregate investment nearing $91 million and capital commitments of $92 million in joint ventures across the country. Vornado Realty Fund, an integrated real estate investment trust, owns over 100 million sq ft of office, retail and other properties in the US.

Retail rentals have doubled in most premium locations across Mumbai, Delhi and Bangalore in the last three years. Retailers have been hit hard due to the soaring realty prices, delays in getting properties and reduction in footfalls.

In a bid to counter this, most retailers have floated their own funds that invest in shopping malls or formed JVs to invest in real estate.

Future Group, which houses India’s largest retailer Pantaloons, has floated Kshitij realty fund that invests in the group’s shopping malls. Tata’s retail arm Trent has tied up with private equity firm The Xander Group to float a retail real estate fund, while Aditya Birla Retail, formed by AV Birla group, has plans to float a retail real estate fund.

The domestic retail market that is currently valued at $511 billion, is projected to grow to $833 billion in the next five years. Organised retail is expected to grow by 40 per cent every year to $107 billion by 2013, according to retail consultancy AT Kearney.

Property consultancy CB Richard Ellis sees a likelihood of nearly 100 million sq ft retail property being developed. Some of the biggest shopping centre developers and investors have started their operations in the country. South Africa’s Old Mutual Property Investments, the UK’s Liberty International, Israel’s Plaza Centres and Metro Junction have announced plans in the country.

Analysts are however concerned about an impending oversupply of space in the retail sector. “Over-supply and saturation may result in correction of rentals in certain pockets and micro-markets in the short to medium-term,’’ said a report from property consultancy CB Richard Ellis.