Institutional investors including private equity, pension and sovereign wealth funds and family offices have invested over $721 million into Indian real estate during the quarter ended September, up 17% from a year ago as investors continued to conduct deals despite the resurgence led uncertainty and disruptions, showed a
The recovery in investments during the first nine months of 2021 has been better than the pandemic year as total deals of $2.98 billion were recorded as against $1.53 billion a year ago.
However, the investment volumes registered during the September quarter are down 47% on a sequential basis.
The muted growth in transactions is likely due to delays in the deal process influenced by travel restrictions. However, some funds with long term horizons have upped their risk appetite by investing in opportunistic asset portfolios. Listed Real Estate Investment Trusts (REITs) continued to raise low-cost debt and use the proceeds to acquire assets at attractive valuations.
“Close analysis of investments during Q3 2021 reveals that it has been more balanced with the residential sector accounting for 29% of the total investments, followed by alternative sector – Data Centre (DC) accounting for 22% share. The mixed-use project of residential and commercial accounted for 19% of the total investments. Investments during the quarter have been broad-based as compared to investments in only two sectors during Q3 2020,” said Lata Pillai, Managing Director and Head, Capital Markets, India, JLL.
Across India, investors are expected to take a cue from improvement in operational metrics of various asset classes as commercial office space witnessed 8% on-year growth in net absorption at 5.85 million sq. ft in the September quarter, while residential sales grew 65% sequentially registering sales of more than 32,000 units.
The residential sector has seen a robust sales growth of 47% during the first nine months of 2021 over the same period of 2020. The third quarter proved that pandemic resurgence had a limited impact as sales grew by 65% on a sequential basis.
“The cautious unlocking of the economy, increased pace of vaccination and affordability synergy led to continuous growth in sales of residential units. Investment flows in the residential segment were impacted due to increased risk perception, shadow banking crisis and structural changes in the sector. The third quarter witnessed increased debt funding for projects that have received good home buyer responses due to the developer track record. Investors are likely to infuse more capital in the residential segment towards projects in the last stages of completion,” said Samantak Das, Chief Economist and Head of Research & REIS (India), JLL
According to him, the rating agency Moody’s recent upgrade of India’s sovereign rating outlook to “Stable” from “Negative” is likely to get reflected in the property sector investments during the last quarter of 2021. The large dry powder, low-interest rates, and continued monetary stimulus are also expected to drive broad-based investment growth.
Among alternative asset classes, Data Centres have been attracting high interest as the industry is expected to double its capacity to 1007 MW by end of 2023 from 499MW as of first half of 2021. The pandemic has accelerated the demand for third party DC industry. Investors and DC players have increased their commitments during the last 6 months to set up new data centres indicating strong growth potential. Investment plans to the tune of $3 billion highlight the growth potential of this industry.
Mumbai with increased investments in the DC industry and capital flow in select residential projects led the investment pie with a 39% share. Bengaluru recorded entity-level investment in a mixed-use (residential and commercial) project leading to a 19% share while NCR-Delhi with transactions in the residential and warehousing segment also had a similar share. Office space transactions have been muted due to a likely delay in the due diligence process and investors gauging the unfolding of work from the office scenario.
The listing of future REITs by institutional investors is expected to drive portfolio creation across classes, while existing listed REITs would expand their existing portfolio through inorganic growth.
Institutional funds with diversified portfolios across assets and geographies are likely to list sooner. Investors are likely to focus on assets stable rental growth to ensure visibility of income. Though office assets will continue to attract maximum investments, defensive assets like logistics and data centres would provide opportunities and are expected to gain traction.
The Industrial and warehousing space sector will continue to attract investors at the development stage to maximize yields as the sector is expected to benefit from e-commerce and third-party logistics (3PL). As the Indian colocation data centre industry size is expected to double by 2023, it is expected to witness higher capital flows to fund the expansion plans of DC operators.