Indian real estate: Indian realty attracts $2.31 billion private equity investments in Jan-Sep

MUMBAI: Indian real estate attracted private equity investments of $2.31 billion, across 11 deals in the first nine months of the year. While total investments are down 56.6% from a year ago, the drop was cushioned by investors’ unabated appetite for office properties.

Of these total investments, the office segment has attracted the largest share of $1.87 billion, claiming 81% share, followed by warehousing at 10% and residential with 9%, showed a Knight Frank India report.

“Private equity investors have taken advantage of this period of economic slowdown to scout for Grade A assets with strong growth trends for investments. As a result of which assets in the office segment saw positive investment activities. The average deal size for office investments was also seen to be remarkably higher in 2020 so far as compared to full year 2019,” said Shishir Baijal, Chairman and Managing Director, Knight Frank India.

The office market has remained a preferred segment for investors due to the strong fundamentals of the Indian office market. Since 2011, the segment has garnered $15.4 billion of equity investments, and during the first nine months of 2020, the segment has seen four deals amounting to $1.87 billion. Around 18.1 mn sq ft of the office was transacted in these three quarters of 2020.

“We have witnessed healthy investor interest in the office segment despite the slowdown this year. While the investors are currently cautious due to the disruptions in the real estate sector and the sharp economic slowdown across global economies, we feel that the investor interest in Indian real estate will remain strong in the long term,” said Rajani Sinha, Chief Economist & National Director, Research, Knight Frank India.

During the period, the residential sector witnessed only three deals worth $216 million, which were down 67% from a year ago, while there were no investment deals in retail space.

In the first three quarters of 2020, the warehousing sector has attracted private equity investments worth $221 million, down 86% from a year ago. This drop can largely be attributed to a significant percentage of capital which was committed to the warehousing sector in India over the past three years awaiting deployment.

However, global investors are expecting the warehousing segments to emerge stronger from the crisis driven by the renewed demand from e-commerce segments due to lockdown and have been taking up positions in warehousing assets.

The report also assesses the assets owned by Government of India’s Public Sector Units (PSUs) and estimates that the top 45 companies hold commercial properties viable for Real Estate Investment Trust (REIT) at a potential of over Rs 1.2 trillion.

According to Shishir, the first two REITs of India have been successful and garnered strong investor interest. The potential of the office space market in India has been fundamentally strong given the generic pace of growth of the economy and the demand. Thus, in the mid-term to long term basis investment in the asset class is expected to be positive. This may therefore be a good opportunity for the government to monetize PSUs’ rent yielding office assets.

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