Knight Frank India, a leading international property consultancy in its latest report cited that the real estate sector in India 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% 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 bn in 2023, a 5.3% YoY growth.
The office sector at 68% accounted for the largest share of all PE investments, followed by warehousing at 21% and residential at 11% share. Mumbai received highest investments accounting for 48%, NCR stood second at 32% and Bengaluru at 13%. Nearly 75% of investments came from Asian countries in H1 2023, in contrast to 86% investment received from Canada & US in H1 2022.
The tightened lending standards and geopolitical uncertainty on a global scale 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% point increase in rates, while the Central Bank of Canada has implemented nine such rate hikes, leading to a 2.75% point increase in the overnight rate. As a result, current interest rates in the US and Canada stand at 5.25% and 4.75% respectively, almost double compared to the pre-pandemic period.
The impact of increased capital cost, and growing concerns of recession has subdued investment activity from these countries. In the first half of 2023, over 80% of the total investments were directed towards ready assets, clearly indicating investors’ cautious stance.
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% share of total investments. The resilience of investable grade office assets supported this dominance. PE investments in the office sector experienced a YoY increase of 24% in H1 2023.
This growth was largely driven by a substantial deal worth $1.4 bn between GIC and Brookfield India Real Estate Trust REIT. Around 80% of the investments in H1 2023 were in ready assets, while 20% were allocated to 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.
