TORBIT INVESTMENT MONITOR

Residential and Industrial Realty are the new growth drivers

Though office real estate continues to be the dominant segment attracting investments, residential, industrial and logistics, besides alternate assets are the new growth drivers for real estate investment.

Despite facing the severe brunt of the second covid wave, real estate investments have shown great recovery, with institutional investment volumes reaching USD4billion in 2021. Although the investments have seen a 17% dip yoy, yet what is really heartening is that compared to 2020, the number of deals has doubled and capital flows came on a broad-based recovery across most asset classes and geographies. The year 2021, according to a Colliers report, has been one of the best years for the residential as well as industrial & logistics sectors, accounting for about half of the total investments at about USD2 billion. This investment momentum may well continue in 2022.

The Office sector attracted the highest investments at USD1.2 billion, accounting for 31% of the total investments, reaffirming the resilience and the long-term growth story of the sector. The industrial and logistics sector was the most promising one and investments rose to a five-year high of USD1.1 billion. This was also more than a five-fold increase from 2020. The sector has been drawing strong operator and investor interest due to increased demand from e-commerce and 3PL players post pandemic. This growth momentum is likely to continue in 2022, as major global investors and developers continue to expand their footprint in proximity to high consumption areas across Tier I and II cities.

“The pandemic has accelerated a number of structural trends and will have lasting changes on the nature of real estate business in India. The Investments across asset classes have seen promising inflows in 2021 reflecting several opportunities for investors to recalibrate their strategy towards growth sectors. This is already evident with the increasing investment being allocated towards the residential segment, data centres, alternatives, industrial, office besides the evolution of the life science sector. There is a reflection of confidence in the industry to participate in the growth story and hence develop, build and own real assets in long term. “Says Piyush Gupta, Managing Director, Capital Markets and Investment Services, Colliers India

“The year 2021, according to Vimal Nadar, Senior Director and Research Head, Colliers India, has seen a strong investor appetite for residential and industrial & logistics sectors while office continues to be dominant. The former breached record highs in recent times lapping up nearly USD2billion of the overall institutional investment volumes. This resonates the strong fundamentals and attractive valuations of the underlying assets supported by a positive economic outlook. The broad-based recovery signals signs of ebullience amongst investors and expansion of REITs, asset diversification, imminent potential in industrial & logistics will keep them busy in the Indian market. Moreover, niche asset classes such as data centres, student housing and life science will provide a unique opportunity for investors to diversify their investments.”

Residential Resurgence 

Investment inflows in the residential segment witnessed a significant uptick with a two-fold increase YoY amid a recovery in the residential sector and increased demand for capital. Private Equity funds are looking at providing capital for fresh investments in residential projects, and also for refinancing/restructuring existing loans of banks and NBFCs. The luxury segment accounted for about 35% of the total investments, with the rest in mid-income and affordable category projects. Luxury residential projects witnessed increased investments in 2021 as demand for bigger homes and gated communities has significantly increased during the past one year.

Investment-friendly Cities 

Delhi-NCR, Mumbai and Bengaluru have emerged as the most investor-friendly cities. As compared to 2020, the share of single city deals witnessed a two-fold increase during 2021, indicating investors’ rising preference towards specific high-quality assets in key locations. With increased investments in select luxury residential projects and data centres, Mumbai led the investment pie in 2021 with a 20% share. Foreign private equity investors continued to have the majority share in the investment volumes, but domestic funds have shown higher confidence, led by a steady recovery in the economy.

Rise of Alternate Asset Classes

Investments in the alternative asset classes continued the growth momentum during 2021, led by data centres. Alternate assets (student housing, co-living, life sciences, data centres) accounted for 11% of the total investments in 2021, up from 8% in 2020. Data centres garnered the highest share of about 60% in total investments in alternate assets in 2021. We expect investments in data centres to further accelerate in the next 2-3 years, a major data centre and digital infrastructure companies are creating platforms and JVs to expand their presence in India.

Along with data centres, investors’ appetite towards student housing and life sciences sectors increased during 2021, with major private equity investors such as Warburg Pincus and Cerestra making investments in the sectors. In 2021, Canada based Ivanhoe Cambridge committed investments worth USD100 million to develop a 1 million square ft of life science and R&D office labs in Genome Valley, Hyderabad.

This trend of rising investments in real estate by the foreign institutional investors and domestic private equity players, will continue in 2022.