Private equity investment in the Indian real estate sector declined by 20 per cent to $2.6 billion in the first half of 2023, according to Knight Frank India’s report – Trends in Private Equity Investment in India – H1 2023.
Although the decline in the investment climate in India was due to a conservative shift in investment strategies due to increasing investor caution in the face of rising geopolitical tensions and interest rates, total PE investment in the real estate sector reached $5.6 billion in 2023, a growth of 5.3 per cent over the previous year.
Across the sector, the office sector accounted for the largest share of all PE investments at 68 per cent, followed by warehousing at 21 per cent and residential at 11 per cent. This is a 20 per cent decline from H1 2022, as PE investors took a cautious approach in H1 2023, resulting in a conservative shift in investment strategies.
Despite prevailing global concerns impacting investment, growth has slowed only to a limited extent and is expected to rebound in the second half of 2023. Overall, PE investment in India’s real estate sector is estimated to reach $5.6 billion in 2023, representing a year-on-year growth of 5.3%. The decline in investments is the result of a conservative shift in investment strategies.
The report data showed that PE ‘s investments in the Indian office sector reached a staggering USD 1.8 billion in the first half of 2023. Although investments from PE continued to lead in the first half of 2023, accounting for a 68% share of total investments, this dominance was supported by the resilience of investable office real estate. PE investment in the office sector registered a 24 per cent year-on-year increase during the period, driven primarily by a large deal worth $1.4 billion between GIC and Brookfield India Real Estate Trust REIT. About 80 per cent of the investment was in completed properties, while 20 per cent was in new and under-construction projects. Mumbai, NCR and Bengaluru emerged as leading office investment destinations in the first half of 2023.
According to the report, the residential sector attracted PE investments $277 million in investments during the same period. The investments were largely residential projects that were still under construction and targeted early-stage investments for better returns. A total of 82 per cent of PE was invested in the housing sector by foreign PE. NCR and Bengaluru emerged as the leading investment destinations, driven by development stage transactions involving prominent global players. Though India’s retail sector did not see PE investment during this H1 2023 period, listing of a retail company REIT would lead to increased investor interest, with tier metros II having more appeal.
Though India’s retail sector did not see PE investment during this H1 2023 period, listing of a retail company REIT would lead to increased investor interest, with tier II metros having more appeal. Investor interest in the retail sector has expanded beyond major metropolitan cities in the last decade. Markets like Chandigarh attracted investments of $267 million, Nagpur and Amritsar $100 million each, Indore $61 million and Bhubaneshwar $46 million.
However, the warehouses segment witnessed a decline in the first half of 2023 with an amount of $555 million compared to $1.2 billion in the first half of 2022. According to the report, lack of supply of quality facilities contributed to the slowdown in investments in the sector. Across India, Mumbai saw the highest investment at 48%, with NCR second at 32% and Bengaluru at 13%. Nearly 75% of investments came from Asian countries in H1 2023, compared to 86% of investments from Canada and the US in H1 2022.
Shishir Baijal, Chairman & Managing Director, Knight Frank, said, “India’s economic growth in the last few quarters has been a strong reason for long-term confidence among global investors. However, we have seen a decline in investment volumes over the past year due to global economic challenges that have led some major economies to take drastic fiscal and monetary measures. This has prompted investors to re-evaluate their strategies, at least in the short term. The Indian office sector continues to attract investors, especially when it comes to high-yielding assets. Unlike other global gateway markets, India has seen steady growth momentum, which has boosted investor confidence in the sector. Looking ahead, the office sector is likely to remain a favorited among investors, as it is expected to maintain its momentum in the short to medium term.”
The office segment has been PE investors’ preferred choice for investment in the first half of 2023, mainly due to the resilience of high-quality office properties. The report forecasts factors such as government investment, currency fluctuations, inflation, interest rates and office supply to drive 5.3% annual growth in PE investment in India in 2023 to $5.6 billion. The outlook for PE investment in Indian office real estate remains positive. As global headwinds ease, the resilience of the Indian economy and the favorable economics of real estate investments will have a positive impact on PE investment activity in the sector, the report said.
-SURESH RATHOD
