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Knight Frank India, in its latest research report noted that the Indian real estate sector recorded PE investments amounting to USD 5,134 mn (USD 5.1 bn) through 29 deals across the office, warehousing, residential and retail sectors in 2022.
On an annual comparative, PE investments witnessed a decline of 17% YoY from USD 6.2 bn registered in 2021. Due to rising inflation, higher interest rates, and geopolitical unrest, investors turned more cautious in 2022, which resulted in a decline in PE investments in India.
The office sector continued to remain the favoured asset class constituting 45% of the total PE investments during 2022. The share of the warehousing segment stood at 37% second highest after office. The share of residential and retail in the total investment pie stood at (12%) and (6%) respectively in 2022. The warehousing asset class observed robust growth of 45% YoY with an investment of USD 1.9 bn in 2022 compared to USD 1.3 bn in 2021. Going forward in 2023, as global headwinds are likely to abate by mid-2023, the capital investment environment is expected to improve.
The total private equity investment in the Indian real estate sector stood at USD 54.8 bn through 659 deals from 2011 to 2022. Apart from the slump in investments observed in 2020 due to the onset of Covid, PE investments in Indian real estate have remained strong in the last decade, with average investments of USD 4.6 bn per year from 2011 to 2022.
On the aspect of PE investments across the top eight markets in India, Mumbai received the highest investments across sectors accounting for 41% of the total investments, followed by NCR with 15% and Bengaluru with 14% in 2022.
In regards to trends witnessed in PE exits from 2011 to 2022, based on public announcement of such exits, the Indian real estate sector observed exits amounting to USD 9.8 bn from 250 deals across the office, residential, warehousing, and retail segments, generating an average IRR* of 23.2%.
Amongst the leading eight Indian markets, Mumbai, Bengaluru, and NCR jointly contributed 86% to total exits observed from 2011 to 2022. PE exits in 2022 stood at USD 822 mn, declining 41% YoY from the peak exits of USD 1,392 mn observed in 2021. The average deal size of exits grew significantly faster than the exit volumes, indicating higher valuations and a growing appetite of investors to absorb higher-value deals. Exits via Public market sales also observed an appetite for large exits, with an average size of exit reaching USD 155 mn and USD 164 mn in 2021 and 2022 respectively.
Commercial office assets remained the frontrunner in 2022, accounting for a 45% share of the total PE investments registered across asset classes. The sector recorded investments worth USD 2.3 bn in 2022 witnessing a decline of 19% YoY. Mumbai and Bengaluru recorded maximum PE investments across the office segment due to development-stage transactions. Ready assets gained the maximum share of investment accounting for 66%, while 34% of the investments were made in new and under-construction developments as investors remained cautious over investments in 2022.
The residential sector accounted for 12% of the total PE investments recorded across asset classes amounting to USD 594 mn in 2022. Investors weighed back toward debt as they exercised caution led by rising interest rates. 87% of private equity investment in the residential sector was received via foreign PE players. Mumbai and NCR led the PE investment in the residential asset class due to development stage transactions by leading global players.
PE investments in retail remained skewed due to two deals in 2022, with investments worth USD 303 mn recorded in 2022. The sector witnessed a 63% YoY decline in investments as the deal activity reduced with concerns about the potential negative effects of a high inflation environment on the sector. With 6% share of the total PE investments across asset classes in India, the retail sector will continue to observe capital commitments from investment platforms that remain bullish on its growth prospects.
