PE Investments in Indian real estate down by 44%

Mumbai followed by NCR receive largest proportion of investments across sectors in 2023; Global investors exercise caution: Knight Frank India

FinTech BizNews Service

Mumbai, December 21, 2023: Knight Frank India, leading international property consultancy, in its latest report – Trends in Private Equity Investments in India 2023 cited that Indian real estate market received private equity (PE) investments of USD 3.0 billion (bn) from 23 deals in 2023 (January 01, - December12, 2023). The distribution of PE investments during the year 2023 saw the office taking the lead with 58%, followed by warehousing at 23%, and residential properties at 19%. The retail sector did not witness any PE deal in 2023. Mumbai (USD 1,685 mn/1.6 bn), the National Capital Region (USD 835 mn) and Bengaluru (USD 347 mn) received the largest proportion of investments across sectors in 2023.

Global geopolitical uncertainties and high interest rate environment with multiple rate hikes from US Federal Reserve and Central Bank of Canada have curbed investment activities from US and Canada leading to significant reduction of 44% year-on-year (YoY) from USD 5.3 bn recorded in 2022. However, PE investments from Singapore towards Indian real estate has significantly moved up from 31% in 2022 to 53% in 2023.

Shishir Baijal, Chairman & Managing Director, Knight Frank India, said, “The office segment in India continued to attract investors' preference owing to the resilience shown by high-quality assets, while the warehousing sector maintained its position as a growing favourite among investors. Foreign investors remained the primary contributors to investments in 2023, followed by domestic investment firms. We have also witnessed that there has been a rise in interest from Asian private equity (PE) players in the recent past. This increased attention from Asians, particularly amid the impact on investments from western countries, could signal a positive shift for the Indian PE market. As global challenges gradually subside, the Indian economy's resilience and the favourable economics of real estate assets are anticipated to spark a resurgence in PE investment activities within the sector.”

Private Equity Investment Details: Office, Warehousing, Retail and Residential Sectors

Source: Knight Frank Research, Venture Intelligence *Investments considered till 12th December 2023

The office sector remained the top recipient of investments in 2023. The office sector received USD 1.8 billion in investments in 2023. Approximately 91% of the investments in 2023 were directed towards ready assets, while 9% were allocated to under construction assets, indicating a tendency among investors taking a cautious stance. PE investments in the office sector declined by 29% YoY in 2023. While the first half of 2023 witnessed significant transactions, such as the USD 1.4 billion deal of GIC investing in Brookfield India Real Estate Trust REIT, the latter part of the year experienced a muted pattern in private equity investments. Mumbai, NCR, and Bengaluru emerged as primary destinations for office investments in 2023.

Residential sector attracted USD 577 million in investments in 2023. Private equity investments in the residential sector were primarily directed towards under-construction projects, with a focus on early-stage investments. 82% of these investments in the residential sector were received from foreign private equity players. NCR and Bengaluru emerged as the primary investment hubs, propelled by transactions in the development stage that featured significant participation from prominent global players.

In 2023, investments in the warehousing segment contracted, totalling USD 684 million, marking a decline from the USD 1.9 billion recorded in 2022. The scarcity of high-quality ready assets was a contributing factor to the reduction in investments within the warehousing sector. Private equity investors are actively exploring various subsectors within the warehousing market, with a specific focus on areas such as e-commerce, logistics, and third-party logistics (3PL) facilities. Despite the observed decrease in private equity investment in the warehousing sector in 2023, the outlook remains optimistic for this asset class. Anticipated growth in the demand for warehouse space, driven by the expansion of logistics and manufacturing companies, is expected to attract private equity investment in the warehousing sector.

In 2023, the retail sector remained devoid of any private equity deals due to heightened global economic concerns and increased interest costs, prompting investors to exercise caution, especially with significant investments. The listing of a retail Real Estate Investment Trust (REIT) is expected to generate further interest among investors in the coming period. Investment platforms, optimistic about the growth potential of the retail sector, are anticipated to persist in making capital commitments as retail sales rebound. Over the past decade, investor interest in the retail sector has broadened to extend beyond major metros. Beyond the primary eight markets, there has been notable traction in cities such as Chandigarh, drawing investments of USD 267 million, as well as Nagpur and Amritsar each attracting USD 100 million. Additionally, Indore has seen investments of USD 61 million, and Bhubaneshwar has secured USD 46 million in investments.