Office Realty & Industrial Asset Class Steal the Limelight

Post-regulation, foreign investments in real estate have jumped threefold to $ 24 billion between 2017 and 2021, compared to the preceding five-year period. Foreign investments into the office asset class have consistently mopped up $ 2 billion annually between 2017-2020, with a formidable 60 percent share carved by the inflows from the US and Canada. However in 2021 industrial and logistics segment emerged as the most preferred asset class by foreign investors, garnering one third of foreign investments of $ 1.1 billion, outdoing the office sector. The improved confidence of foreign investors also resulted in a rebound in residential investments, after a slowdown of two years.  

As per the Colliers report, recently released at a Ficci event, global investors have shown an increased inclination towards Indian real estate on the back of far-reaching regulatory reforms. in the sector. They had previously refrained from investing in the Indian real estate market due to the lack of transparency.  However, they started investing in the country with greater optimism from 2017 onwards when Real Estate Regulation Act came into force. . The share of foreign investments in Indian real estate has grown to 82% during 2017-2021, compared to 37% in the preceding five-year period.

Today, we are witnessing a buoyancy in global capital inflows in India across asset classes, dominated by office and industrial assets. The investors are taking a long-term view with significant exposure on development assets, reflecting confidence to take construction risks with credible partners. The investors continue to invest with developers having proven expertise in respective business areas to build and acquire long-term sustainable assets. Piyush Gupta, Managing Director, Capital Markets and Investment Services, Colliers is of the opinion that with residential sales continuing to do well across markets in India and opportunities available to developers to grow, more structured capital is likely to flow into the sector.

During 2017-21, the Office sector held the dominant  43% share in total foreign investments followed by the mixed-use sector accounting for 18% share. The investments in the Industrial and Logistics sector figure at number three,  surpassing the residential sector. Foreign investors remained cautious about the residential sector in the aftermath of the NBFC crisis and subdued residential sales. The share of residential assets in total foreign investments has reduced to 11% in 2017-2021, from 37% in the preceding five-year period.

The demand for alternative assets including life science labs, data centers, flex spaces has grown during the pandemic as investors seek new avenues for growth and returns. Data centres garnered a maximum share of 52% of foreign investments in alternatives in the last five years. The lack of income-producing data centre assets in key locations and scope for future REIT listings will push investors to form new platforms for development opportunities. In the past five years, capital commitments equating USD13.5 bn have been made by global data center operators, corporates, and investors for the development of data centers in India”, according to  Vimal Nadar, Senior Director, Research, Colliers India.

The office sector saw a significant uptick in foreign capital flows post-regulatory reforms with robust demand for Grade A office space and exit avenues like REITs bolstering investments. Foreign investments in the office sector have consistently reached USD2.0 bn in each year since 2017 except in 2021, when the quantum of investments almost halved.

The pick up in industrial and logistics assets in India happened only in the last five years, driven by robust demand from E-commerce and 3PL firms for modern warehousing facilities. In 2021, Industrial and logistics assets emerged as the top choice for foreign institutional investors, garnering almost a third of foreign investments (USD1.1 bn), surpassing the office sector. Lack of ready Grade A industrial and logistics parks across tier I and II locations amid high-demand scenarios has pushed investors to create platforms for the development of modern warehousing facilities in these locations.

During 2017-21, alternative assets saw an inflow of about USD1 bn, with a majority of it coming during the pandemic years. The government’s progressive policy for data localization and the infrastructure status granted to data centers in this year’s budget is likely to give a boost to the establishment of new data centres in the country.

Despite the challenges posed by the pandemic, the funds from USA and Canada continue to actively explore the industrial segment, apart from the office and mixed-use assets. Similarly, the majority of the investments from Asia are targeted toward the office and industrial and logistics sectors.