Indian PE investors in real estate favour commercial office, says report

Private equity investors are still shunning the Indian residential real estate
Indian PE investors in real estate favour commercial office, says report
By James Mathew
Tue 02 Apr 2019 12:19 PM

India’s real estate sector appears to have gained back the confidence of financial investors, with institutional investors pumping more than $4 billion in the sector in 2018, according to a latest industry report.

The investors, however, are largely limiting to their to investments to the commercial office segment, with the segment attracting 70 percent of the private equity (PE) investments last year, according to the report by Anarock Property Consultant on Private Equity in Indian Real Estate.

The report’s findings reveal that private equity investors are still shunning the Indian residential real estate, with the segment attracting less than 7 percent of the total PE investments in the industry last year.

Retail real estate accounted for only 7 percent of PE investments I 2018.

The report said out of the total PE inflow of $14 billion into the sector in the last four years, 2017 and 2018 collectively saw the maximum investments to the tune of $8.6 billion.

Marked increase

The industry is projected to see a quantum jump in PE investments in the current year, riding on the back of a significant pick up in office and warehousing spaces and also commencement of listing of real estate investment trusts (REITs) on the Indian bourses.

“2019 will bring a marked increase in private equity funding because of India’s first REIT listing," Shobhit Agarwal, MD & CEO of Anarock Capital said.

In a first initial public offering by a REIT, Embassy Office Parks REIT - a joint venture between the Bangalore-based property developer Embassy and private equity firm Blackstone - raised $686 million last week. The REIT was opened for trading on Monday.

Besides, PEs have invested close to $1 billion in India’s commercial real estate in the first 3 months of this year, a large chunk of it coming through Brookfield’s acquisition of a portfolio of hotel assets of Leela Ventures for $570 million last month.

“From this point onward, commercial real estate - especially Grade A office spaces - will attract considerable investments,” Shobhit said.

“Institutional investors will continue to pump in funds into the real estate industry if they can rely on political stability, proactive policies and a favourable microeconomic environment,” he said.

Deal size

Despite a decline in the number of PE deals in the real estate sector since 2015, the average deal size has increased by nearly 172 percent in the last four years – from $47 million in 2015 to $128 million in 2018, the report said.

The top 5 deals in 2018 alone contributed almost 50 percent of the total investments during the year.

Blackstone’s $730 million investments in Indiabulls Real Estate, Brookfield’s $386 million investment in the Mumbai-based Equinox Business Park, Mapletree Investment’s $352 million investment in Shapoorji Pallonji Group and  Xander’s $350 million investments in Hyderabad-based Phoenix group were among the largest PE investments in the Indian office reality segment last year.

“PE investors have become more cautious about selecting and associating with developers. However, once confident, they are making larger investments,” the report said.

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