A joint venture between Warburg Pincus and City Retail Developments based in Indonesia has raised $200 million to develop multi-tenanted modern shopping malls in major cities across the country.
The move underscores the ambition of the joint venture, NWP Retail, to tap into Indonesia’s outsized economic expansion, rise in middle-class consumption and rapid urbanisation.
With over 265 million people, Indonesia is the world’s fourth most populous country, but slow internet speeds and a high cost of logistics have hampered growth of e-commerce, meaning that offline retail businesses continue to thrive.
Retailers in the fashion and entertainment industry, for example, are expanding rapidly across several major Indonesian cities, but growth has been marred by a supply shortage of suitable commercial buildings. Occupancy rates are high too. The malls of Lippo Group, which is one of Indonesia’s largest real estate developers, consistently have an occupancy rate of at least 90%, according to one real estate investor. The average letting rate across China, in comparison, is around 80%.
Yields are attractive too. In cities like Jakarta, retail real estate rent has grown by 5% annually over the past years and is likely to pick up to 6% in 2019, according to JLL Research.
“Modern retail continues to remain meaningfully undersupplied with over 70% of the top 200 cities still ‘unmalled’ today,” said Jeffrey Perlman, managing director and head of Southeast Asia for Warburg Pincus. He added that NWP Retail, which was founded in 2015, is in a good position to build on its status as leading independent retail developer in Indonesia.
Indonesia’s emerging middle class is another factor spurring growth of the retail business in the country, said the Korean Teachers’ Credit Union, which – alongside CITIC Securities’ One-Belt-One-Road Fund and Warburg Pincus – was one of the investors in the latest funding round,
So far Warburg Pincus expansion has now invested $4 billion in the Asian real estate market.