Private equity investments in India’s real estate tumbled 20% in the first half of 2023 to $2.58 billion from the same period last year as investors have become more cautious, leading to a shift in their investment strategy, according to a report by brokerage firm Knight Frank.
“We have witnessed 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,” said Shishir Baijal, Chairman & Managing Director at Knight Frank.
Around 75% of the investments in H1 2023 came from Asian countries. The share of Canadian and US investors, which accounted for an 86% share in the same period last year, declined sharply due to higher capital costs, interest rates, and macroeconomic concerns in their countries.
Funding in real estate by private equity firms is expected to reach $5.6 billion at the end of 2023, a 5.3% growth from last year, said Knight Frank, which expects the market to bounce back.
Offices lead the way
Private equity investments in India’s real estate by segment in H1 2023
| Real estate assets | Private equity Investments (in $ million) | % of Funds received | Number of PE deals |
|---|---|---|---|
| Office | 1750 | 68 | 4 |
| Warehousing | 555 | 21 | 5 |
| Residential | 277 | 11 | 5 |
| Total | 2582 | 100 | 14 |
Source: Knight Frank
With demand for desk space driven by “the resilience of investable grade office assets”, India’s office sector snapped up the largest private equity funding with $1.8 billion in investments, accounting for 68% of all private equity investments since January. The sector represented a 24% year-on-year increase in the period thanks to the $1.4-billion deal between Singapore’s sovereign wealth fund GIC and Brookfield India REIT to acquire commercial properties in India.
“The Indian 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,” said Baijal.
Meanwhile, Indian warehouse deals by private equity investors bagged $555 million (21%), almost half of the $1.2-billion investments in the first quarter of 2022.
Taking the third-largest share of all private equity investments, India’s residential sector received $277 million (11%). Under-construction projects emerged as the favoured assets to maximise returns for early-stage play. India’s retail properties, however, did not see any interest from private equity players during the period.
In terms of geography, Mumbai notched up the biggest private equity investments of $1.6 billion with six deals, representing a 48% share. Meanwhile, NCR stood second at 32%, followed by Bengaluru at 13%.