Knight Frank India, in its latest report Trends in Private Equity Investment in India – H1 2023, cited that India's real estate sector received $2.6 billion in private equity (PE) investments across office, warehousing and residential sectors in the first half of 2023. This is down 20 per cent from H1 2022 as PE investors adopted a measured approach in H1 2023, resulting in a conservative shift in investment strategies. Despite prevailing global concerns influencing investments, the moderation in growth has been limited, and a rebound is anticipated in the second half of 2023. Overall, PE investments in the Indian real estate sector is estimated to touch $5.6 billion in 2023, a 5.3 per cent YoY growth.
The office sector at 68 per cent took the largest share of overall PE investments, followed by warehousing (21 per cent) and residential (11 per cent). Mumbai received highest investments of 48 per cent, NCR stood second at 32 per cent and Bengaluru at 13 per cent. Nearly 75 per cent of investments came from Asian countries in H1 2023, compared with 86 per cent received from Canada and US in H1 2022.
Tighter lending norms and global geopolitical uncertainty kept investors cautious and limited their involvement in the market.Since March 2022, the US Federal Reserve has implemented interest rate hikes on ten occasions, resulting in a 2.25 per cent-point increase in rates, while the Central Bank of Canada has implemented nine such hikes, leading to a 2.75 per cent-point increase in the overnight rate. As a result, current interest rates in the US and Canada stand at 5.25 per cent and 4.75 per cent, respectively, almost double compared to the pre-pandemic period. The impact of higher capital cost and growing concerns of recession has subdued investment activity from these countries.In the first half of 2023, over 80 per cent of the total investments were directed towards ready assets, clearly indicating investors’ cautious stance.
Segment wise break up of PE investments in H1 2023
Trends in PE investments in Office assets: The Most Favoured Segment
The office sector received $1.8 billion in investments during H1 2023. The trend of office assets maintaining their lead continued in H1 2023, accounting for a 68 per cent share of total investments. The resilience of investable grade office assets supported this dominance.PE investments in the office sector grew 24 per cent YoY in H1 2023, largely driven by a massive deal worth $1.4 billion between GIC and Brookfield India Real Estate Trust REIT. About 80 per cent of the investments in H1 2023 were in ready assets, while 20 per cent were in new and under-construction developments, reflecting investor aversion to risks. Mumbai, NCR and Bengaluru emerged as leading investment destinations for office investments in H1 2023.
Space transacted by PE investors in Office space segment in the last decade
Source: Knight Frank Research
Shishir Baijal, Chairman & Managing Director, Knight Frank, said, "Indian 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 the volume of investments over the past year due to the economic challenges faced worldwide, leading some large economies to take drastic fiscal and monetary policy measures. This has further caused investors to re-evaluate their strategies, at least in the short-term. The India office sector continues to attract investors, particularly for ready income-yielding assets. Unlike other global gateway markets, India has consistently witnessed a steady growth momentum, which enhances investor confidence in the sector. Looking ahead, the office sector is expected to remain a favourite among investors, as it is likely to maintain its momentum in the short to mid-term."