Investment platforms for retail assets are re-assessing their strategies. They are carefully analyzing the impact of pandemic before making any investment. Major investment platforms for retail assets are CPPIB-Phoenix Mills, Blackstone etc. The graph of investment in retail space is going down in 2020 as compared to the investment in 2019 where it was around $397 million.
The year 2020 is expected to be a black year for retail segment and it is very difficult to witness much investment activity at least for next 12 months. As compared to other investment, investors are now associating more risk with retail assets. On account of revenue generation, investors are facing greater financial crisis because of no rentals or lower rentals.
Retail segment had experienced good growth in the previous years. According to the recent data, the segment received investment worth Rs 4,100 crore in 2019 and Rs 2,455 crore in 2018. But this year, due to COVID-19 pandemic, this sector has been one of the worst performing sectors. Under current economic circumstances, due to lower investor's interest, de-growth in rental on account of revenue generation, heightened risk perceptions with higher cap rates have made retail assets an unattractive investment proposition.
Many brands have decided not to pay the rents. They are looking for new investment strategies. This will create a huge impact on the retail sector. According to The Shopping Centres' Association of India, the organized retail sector has suffered a loss of Rs 90,000 crore. This has increased the graph of unemployment at a larger scale. This has occurred due to the absence of financial relief and government support.
Private equity investors are the most affected people due to this financial crisis. This year experienced around 80 percent drop in the number of deals as compared to previous year. Due to this pandemic, many tenants are demanding rent-free accommodation and other concessions to cope up with the situation.
Private equity has also been trying to build up their equity position in rent yield commercial assets like office, warehousing etc. But their share in overall investments dropped eventually. According to the recent data, the organised retail industry is in distress and has not earned anything since lockdown and now their survival is also at risk. The government is planning to give some relief to this industry in the form of loans but there are bleak chances of their liquidity returning to normal.
The author is Head of Research at CapitalVia Global Research Limited- Investment Advisor.