Capital Markets Update: Q3 2021

Slower growth momentum in institutional investments during Q3 2021

Real estate investors held their ground despite lockdown restrictions that state governments had reintroduced due to the second wave. But their pace slowed in Q3 2021. Institutional investment posted 17% Year-on-Year (YoY) growth (USD 721 million) during the third quarter. The growth was muted because of delays in the deal process due to travel restrictions. However, some funds with long term horizons have upped their risk appetite by investing in asset portfolios that are expected to witness a turnaround with a gradual return to normalcy. 

The listed REITs continued to raise low-cost debt and use the funds to acquire assets at attractive valuations. Investors are expected to take a cue from improvement in operational metrics of various asset classes. The commercial office space witnessed 8% YoY growth in net absorption at 5.85 mn sq ft in Q3 2021, and residential sales grew by 65% on a sequential-quarter basis registering sales of more than 32,000 units.

The positive outlook is likely to get reflected in the real estate sector investments during the last quarter of 2021. Large dry powder, low interest rates, and continued monetary stimulus are expected to drive broad-based investment growth.

Following investment themes are expected to continue:

• The listing of REITs by institutional investors is expected to drive portfolio creation across classes.

• Investors are likely to focus on assets with stable rental growth to ensure visibility of income.

• The industrial and warehousing segments will continue to attract investors at the development stage to maximise yields.

• As the size of the Indian colocation data centre industry is expected to double by 2023, it would witness higher capital flows to fund the expansion plans of data centre operators.

• The investment in residential real estate is expected to remain cautious and selective, mostly in the form of last-mile funding.

The institutional flow of funds includes investments by family offices, foreign corporate groups, foreign banks, proprietary books, 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. Investments in the data centre sector have been included for analysis of recent trends.