FICCI-Vestian Report finds growing investor confidence in Commercial Real Estate

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New Delhi, 18 October 2022: Institutional investment in Indian real estate continues to witness fair traction, recording an inflow of USD 3.4 billion during the first nine months of 2022, according to the FICCI – Vestian report “Institutional Investment in Indian Real Estate”, released today.

The report finds growing investor confidence in the sector, with commercial assets as the preferred asset class, accounting for a 60 per cent share of total investment during January-September 2022. Further, the report finds residential assets observing resurgence, with their share rising to 27 per cent in 2022 from a mere 4 per cent in 2020.

Speaking during the first FICCI Real Estate Investment Summit, Sanjay Dutt, Joint Chairman, FICCI Real Estate Committee and MD & CEO, Tata Realty & Infrastructure,noted that close to 14 million square feet of absorption would be recorded during January-December this year. Further, he added, “the bounce from April 2023 will be very strong given the supply is extremely limited, rentals firming up, and access to capital constrained.”

On occasion, Shrinivas Rao, Chief Executive Officer, Vestian, underscored the considerable resilience of the real estate sector. He said, “the continued traction in institutional investment in the sector during the year signifies investors’ confidence despite economic constraints, inflationary pressure and the continuing pandemic. Moreover, we believe that with the government working towards augmenting ease of doing business, growth in the IT sector, and immense prospects held by alternative assets, institutional investment in real estate will emerge stronger in the forthcoming period”.

The report finds institutional investment in the country’s real estate at around USD 27.8 billion from 2018 to September 2022 (YTD), with foreign funds funnelling substantial investment into the sector. It states that several US-based and Singaporean PE firms have been remarkably active, accounting for most of the PE investment during 2018-YTD 2022.

The FICCI-Vestian report also highlights that despite the ‘restraints instigated by the COVID-19 pandemic and the resultant constricted business environment, the period encompassing 2020 till YTD 2022 saw an announced investment value of nearly USD 13.9 billion in the Indian real estate sector, portending a fair amount of traction in the market.’

Key findings from the report

Commercial assets are the most preferred investor segment

During the period 2018 to Q3 2022 (till September) commercial assets segment has emerged as the most preferred segment to attract investor interest. Foreign funds continue to eclipse India-dedicated funds in the total investment pie.

Investor focus is on steady retail assets.

The share of retail in the total commercial real estate investments has grown to 14 per cent in 2022 (YTD) from 0 and 8 per cent in 2020 and 2021, respectively. With customers returning to retail projects and business activity picking up, investors have shifted their focus on steady retail assets. The sector could witness continued investor commitments based on favourable growth prospects due to pent-up demand after a lengthy pandemic-induced lull.

Co-working segment will account for 25 per cent of office space absorption by 2025

Despite the pandemic-induced uncertainties, the co-working space segment’s share in total absorption increased from 10% in 2018 to 18% in 2022 (YTD). The segment is expected to account for a larger market share, given significant changes in workspace dynamics due to technology, innovative space design and flexibility preferences.

Things are looking up for residential assets. 

The residential sector has witnessed a resurgence, with the majority of the investment observed in Bengaluru, with the city attracting a whopping 39 per cent share of the total investment in 2022 (YTD), followed by NCR and Mumbai with 19 per cent and 16 per cent shares, respectively.

Affordable and luxury housing record significant activity

The share of affordable and luxury housing in total investment in residential assets stood at 28 per cent and 38 per cent in 2022(YTD).

Alternative asset classes may record noteworthy developments in 2022

Data centres and life sciences R&D centres in India continue to attract rising investor interest on the back of potential growth prospects fuelled by increasing demand from fintech, education, media and content companies, as well as the growth in the pharma sector and the increasing contribution of India’s workforce in the life sciences sector.

Thematic REITS may emerge

Notwithstanding the fragmented nature of the market, high compliance and stringent regulatory requirements, REITs stand to gain substantially in the time ahead. Over time, structural themes – on retail, warehousing and hospitality assets – of REITs are expected to emerge. In addition, SEBI’s decision to set up an advisory committee on hybrid securities also bodes well for the sector. Moreover, its decision to allow REITs to issue commercial papers will help raise short-term debt at a lower interest cost. As a result, REITs in India will witness a continued upward growth trajectory.

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