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Economy Sep 12, 2012

China, India may lead retail real estate investment by 2020

By Arlene Chang

Despite sluggish demand on the crutches of a slowly trudging global real estate economy, China and India topped retail real estate investment opportunities, according to a Jones Lang LaSalle report.

In the report released today, titled 'Redefining Retail Investment: Global Real Estate Futures', the global real estate services firm, ranked the two Asian countries top of the Real Estate Momentum Index, which identifies countries with the strongest momentum in consumer, retailer, developer and investor activity. The top 20 countries were chosen from a pool of 56 on the basis of their growth projection of population, overall and per capita GDP, retail sales, shopping center stock and momentum indicators of real estate.

The BRIC nations lead the way in the index, with China and India topping the charts, followed by Indonesia, Turkey and Brazil. Russia stands at ninth position. India falls short of China due to weaker real estate investment momentum and a smaller international retailer presence.

China is set to become the world's largest consumer market and projected to be $15 billion a year retail real estate investment market by 2020. AFP

According to the report, emerging markets are expected to account for about 25 percent of retail real estate investment by 2020 vis-a-vis the 10 percent market it has today, even as the contribution of advanced and mature markets will decline from its present 80 percent to just above 60 percent by 2020.

"There will be a general rebalancing in capital flows towards the Asia Pacific region, due to favourable demographics and the growth of the middle class. By 2020, Asia Pacific is forecasted to account for 26 percent of global retail investment volumes, up from 22 percent currently and from only 11percent in the mid-2000s," the report said.

Michael Niemira, vice president of research and Chief Economist at the International Council of Shopping Centers said that the investment growth in retail in many of the countries in the report's top 20 list will be bolstered by imbibing the practices of real estate investment trust (REIT) investment vehicles.

"The REIT, which provides transparency and ease of investment, has grown dramatically over the last 40 years with 27 countries already offering such financial regimes and currently another seven -China, India, Indonesia, Nigeria, Kenya, Vietnam and South Africa - considering future adoption. The ease of access to cross-border and domestic capital and strong consumer fundamentals should provide a solid platform for the growing global retail real estate markets over the next decade," Niemira said in the report.

While China is set to become the world's largest consumer market and projected to be $15 billion a year retail real estate investment market by 2020, India's retail sector is emanating a dynamism of reinvention after its initial hit-and-miss approach, the report added.

"We are able to track these positive market modifications by the way in which demand for retail real estate is changing in India. There is a clear thrust towards international benchmarks, with growing market knowledge and ever-increasing aspirations driving current and future growth," says Anuj Puri, Chairman & Country Head, Jones Lang LaSalle India.

However, the danger may be that the country's real estate sector is still hamstrung by restrictive foreign investment policies, he says. India is also a notable absentee among the BRIC countries for FDI in retail, where government policy, particularly in retail real estate, has stunted any potential investment market over the last few years.

While rates of retail floor-space expansion in India are around 15 percent per year, the country will remain a two-paced market. This means that from a retailer's perspective, the country is a lucrative destination, even though it is yet to fully open to international retailers. However, for retail investors, it is still unlikely that India will see a boom in foreign investment in the short to medium term due to its restrictive policies and limited entry and exit options.

"While the government could eventually ease such restrictive policies, it is probable that foreign groups will continue to focus their emerging markets' strategies elsewhere in the short to medium term," says the report.

by Arlene Chang

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