Institutional investment at USD 5.2 billion in CY 2022

Mumbai, January 10, 2023: The Indian real estate sector attracted INR 38,480 crores or USD 5.2 billion of investments spread across 47 deals in the calendar year 2022. This translates into 19% increase in investments despite uncertain environment, a testimonial to the confidence in the Indian real estate market. The average transaction size in 2022 at USD 105 million was also 46% higher than in 2021. The third quarter of 2022 (July-September) witnessed investment volumes soften by 12% compared to Q3 2021. However, Q4, 2022 volumes soared by 103% when compared to the same period in the previous year. Institutional flow of funds includes investments by family offices, foreign corporate groups, foreign banks, proprietary books, pension funds, private equity, real estate fund-cumdevelopers, foreign funded NBFCs and sovereign wealth funds. It also includes anchor investors in REITs. The data has been compiled as per available information in the public domain. 

While the office sector continues to lead at 36% share of investments, the residential sector has made a strong recovery in 2022 with 30% share of the overall investments. The year 2022 saw the retail sector back on investors’ radar as malls recorded revenue of pre-COVID-19 levels. Alternatives, which include Data Center and Life Science investments, is at 14% share. COVIDenforced technology adoption has led to opportunities for investments in Alternative assets.

“The real estate investment markets remained buoyant in 2022 and crossed INR 38, 480 crore (USD 5.2 billion) which was the annual trend between 2018 and 2020. This recovery was despite geopolitical headwinds and rising inflationary pressures. The investors have adapted to the uncertain environment in the past, and we expect this optimistic trend to continue in the current year. Commercial continues to be the preferred sector this year too, however warehousing and data centers are the two sectors which we feel will also attract a major share of institutional investments in the years to come,” said Lata Pillai, Managing Director and Head, Capital Markets, India, JLL.

174% increase from 2021 in investment platform commitments 

An increase in the Platform deals/ partnerships by 174% from 2021 suggest increasing confidence in the Indian real estate market. Improved synergy of marquee global funds with pedigree developers in respective asset classes is an indication of a market moving towards institutionalisation. Also, the year 2022 witnessed an increase in the average commitment amount by 96% from the previous year. Warehousing took the major share of the pie at 41%, followed by the office sector at 35%. Since 2017, post the GST legislation, the warehousing sector has seen a significant commitment from platform investments

Sectoral insights

Office sector: The office sector continues to be the front runner for institutional investments, with investments of USD 1,860 million (INR 13,764 crore) spread across seven deals. An increase in capital flow by 36% from 2021. Rebound in the office sector with return-to-office and renewed leasing led to improved investment sentiments. Bengaluru accounted for the highest share of investments at 38%. This was followed by large deals consisting of multi-city assets (top seven cities) accounting for 35% share.

Residential sector: The Residential sector attracted USD 1,564 million (INR 11,440 crore) investments in 2022 compared to USD1081 million (INR 7,999 crore) in 2021- an increase of 45%. Robust sales post the pandemic made investor relook at the sector. Investments towards the residential segment have shown a dwindling trend since 2016, with office sector gaining popularity with global investors. However, the pandemic made people realise the importance of homes and the last two years have seen robust sales across all segments.

Retail sector: The retail sector had its share of struggle during the pandemic, imposed by numerous lockdowns. Following two years of sub-par financial performance, 2022 found the retail sector witnessing a strong rebound, with retail footfalls and sales matching pre-pandemic levels. However, given the global economic slowdown, this year saw a dip in investment from the previous year. 2022 received investments worth USD 301 million (INR 2,227 crore), down by 46% from 2021.

Warehousing and logistics: The warehousing sector’s investment climate in India is showing bright and sunny days ahead, driven by the buoyant demand keeping the investor interest intact. In 2021, the top eight cities witnessed a 162% Y-o-Y growth in institutional investments compared to the pre-pandemic year of 2019. This year has seen investments of USD 288 million (INR 2,131 crore) through 6 deals and an additional commitment of USD 1875 million (INR 13,875 crore) through platform deals. Private-equity investors are pushing the warehousing rents in India, as they expect an entry yield of 9% - 10% instead of the current yield of around 7% - 7.5%.

Data Centers: The Indian colocation data centre industry received 64% of the total investment (USD 1.4 bn (INR10,360 crore)) during the last five years compared to USD 502 million (3,715 crore) during 2008-17. The operational capacity of India’s colocation data industry grew by 2.5 times from 250 MW in 2017 to 637 MW as of H1 2022, leading to high investment commitments. Industry capacity is expected to double from 637 MW as of H1 2022 to 1,318 MW by the end of 2024, entailing a CAPEX of USD 4.6 bn (INR 34,040 crore) and 7.8 million sq. ft of real estate development. 

Looking ahead 

Investments in real estate market remained buoyant across asset classes in 2022 and we anticipate this to continue in 2023. We foresee Investors’ cautious but optimistic approach in the first two quarters of 2023 as further interest rate hikes are anticipated in the first quarter.

Investment activity is expected to further pick up the pace by the end of Q2 2023 once there is clarity and less uncertainty. The market will witness further growth in platform funds with increasing transparency and positive regulatory reforms. We expect REITs to expand into other asset classes besides office and drive liquidity. 

But the risk remains:

Most of the institutional investments in India is foreign capital. With an increase in global interest rates, capital flows and risk perception will be reassessed by investor leading to a wait and watch scenario. Reducing spread between 10Y G-secs (government bonds) and rental yields may impact the attractiveness of assets for investors. With increasing cost of debt, the investors may relook at the viability of investment at development stage projects.

• Residential sector attracted INR 11,574 crore (USD 1564 million) Institutional Investments* in Calendar Year (CY) 2022

• The Office segment received INR 13,764 crore (US 1860 million) in investments across 7 deals

• Warehousing was at INR 2131 crore (USD 288 million) in the same period

• Data Centre capacity expected to double from 637 MW as of H1 2022 to 1,318 MW by the end of 2024

• Platform commitments of USD 4.5 billion (INR 33,330 crore) have been announced to be invested over the next few years

*Institutional flow of funds includes investments by family offices, foreign corporate groups, foreign banks, proprietary book s, pension funds, private equity, real estate fund-cum-developers, foreign funded NBFCs and sovereign wealth funds. It also includes anchor investors in REITs. The data has been compiled as per available information in the public domain. The investment period has been captured based on term sheet signed or transaction announcement and not from the actual transfer of capital.