Investors Bet on Indian Real Estate

The office sector and Alternate Assets have emerged as the most preferred asset classes to attract investment flows in real estate, with mixed-use and retail segments as major drivers.

Institutional investments in Indian real estate touched USD 2.6 Billion during H1 2022, a 14% rise from H1 2021. Investors are enthused by the recovery seen across the Indian real estate spectrum, after Covid-19-induced disruptions. The inflows during H1 2022 were led by the office sector which accounted for about 48% share, followed by the retail sector with a share of 19%.

On a quarterly basis, inflows into Q2 2022 have increased from the preceding quarter, while registering a 50% increase from the average quarterly inflows of 2021. Delhi- NCR saw the highest share of inflows at 35% followed by Mumbai with an 11% share and Chennai with a 10% share.

According to Piyush Gupta, Managing Director, Capital Markets and Investment Services, Colliers ,the first half of 2022 has witnessed euphoria of businesses bouncing back with increased office and industrial leasing, retail and travel spend, and continued buoyancy in the residential sector. However, the market is seeing some caution on account of geopolitical tensions and increased expected risk-adjusted returns.  Investments in India continue to increase in both development and operating assets. With the current business environment, India will benefit the most from the Asian economies with increased capital inflows. The Indian Real Estate likely to witness both equity and credit inflows tapped by existing and newer investment management platforms .

Interestingly, domestic investors are back in the market with a 38% share in H1 2022, a massive jump from just 13% share in H1 2021. Domestic investors were majorly inclined towards mixed-use assets and the retail sector. However, investments continue to be driven by foreign investors wherein pension and sovereign funds are betting on income-yielding assets in the office, retail and industrial sectors.

India Investments inflows

Source: Colliers

Office Sector & Alternate Assets – Key Drivers

During H1 2022, the office sector garnered about 48% of the investments. Investors are seeing encouraging signs of revival in the office sector since late last year. While a hybrid style of work is the dominant mode of working, large technology corporates continue to lap up office spaces. Investors are taking a medium to a long view of the sector, with the intention of bunding assets into REITs. As a result, investments in the office sector rose 20% YoY in H1 2022.

During H1 2022, the retail sector saw a 19% share in investments as investors look toward completed malls as an investment avenue. India’s retail market is seeing an expansion of fashion and F&B brands. Also, malls have been seeing a healthy pick-up in footfalls since last year. The industrial & logistics sector and the residential sector saw subdued inflows during H1 2022.

Investment inflows into alternate assets rose 53% YoY during H1 2022 to about USD370 million, indicating that investors are betting big on diversifying their portfolios. Deals during this period ranged from data centres, holiday homes and life sciences.

Going forward, there are likely headwinds in the form of recession in the global markets. However, Vimal Nadar, Senior Director and Head of Research, at Colliers India says that on the positive side, this will boost IT services in India. We can expect more investments in global capability centres in India over the next few years. Moreover, there is untapped potential in India’s alternate assets which investors are looking for from a diversification perspective. During H1 2022, inflows in alternate assets accounted for 14% of total investments. The next few quarters will see some greenfield investments, especially in the office and industrial & logistics sector,