Global investors eye India's resilient real estate market

Gurgaon: Institutional investments in the Indian real estate sector maintained a steady momentum at $5.4 billion, rising 10 per cent YoY during 2023. The year witnessed the highest levels of investment inflows since 2020 showcasing India's resilience despite uncertainties in global markets otherwise. While foreign investments retained their dominance, forming 67 per cent of the total inflows for the year, domestic investments also registered an impressive 66 per cent annual increase at $1.7 billion. The office sector continued to be the largest contributor in real estate investments for 2023 with a 56 per cent share in total inflows, attracting both global as well as domestic capital. While the overall investment inflows during the year remained sturdy, the last quarter of the year saw moderation. At $0.8 billion, Q4 registered a 37 per cent YoY drop in investments. Alternatives, meanwhile, had a 51 per cent share in total inflows during Q4 2023, indicating strong demand in segments including data centres, student housing, life sciences, schools, etc.

While key global investment markets faced downside risks, India maintained its status being among the fastest-growing economies keeping investor confidence intact. While inflows from the US have witnessed a drop in 2023 as compared to 2020 levels, Canada and Singapore are increasingly establishing themselves as leading sources of foreign capital in Indian real estate. These two countries accounted for 78 per cent of the global real estate inflows into India during 2023. Noteworthily, investment inflows from APAC countries have been rising every year and have surged to 3.6X times in 2023, compared to 2020. Investors continue to view India favourably, owing to strong economic performance, improved regulatory framework, and sustained demand across various real estate segments.

"As India's real estate sector closes yet another promising year, institutional investments saw an increase of 10 per cent and stands at $ 5.4 billion—the highest since 2020. The investments in Indian real estate are more broad-based, with significant investments coming into education, shared spaces, and data centres, adding to a strong domestic upcycle in office, residential, and industrial areas. Investors from the APAC region have been showing an increasing appetite for Indian real estate, contributing to about half of the total foreign inflows during 2023. Looking ahead to 2024, investment activity is likely to remain unabated backed by robust domestic economic fundamentals, while a strategic integration of technology and ESG will play out in investment decisions." said Piyush Gupta, Managing Director, Capital Markets & Investment Services at Colliers India.

Domestic capital inflow surged 66 per cent YoY during 2023

• Domestic investors have emerged as active contributors, contributing 32 per cent of the total real estate investments in 2023, compared to 22 per cent share in 2022.

• While the office market continues to be the frontrunner backed by investments from global players, domestic investors are focusing more on alternative and residential assets.

Office sector continues to be the frontrunner; investments in alternatives rebound significantly

• At $3.0 billion, investment inflows in the office sector rose 53 per cent YoY during 2023, led by select large deals. The uptick reflects a rising interest in completed and pre-leased income-yielding office assets, showcasing investors' sustained confidence in the long term potential of the sector.

• Notably, investors are actively establishing Joint Venture (JV) platforms to capitalize on emerging opportunities and participate in both existing and upcoming office projects.

• 2023 saw some significant platforms being established for the development of office as well as residential assets.

“In the ever-evolving tapestry of India's real estate landscape, while investors continue to diversify portfolios, the office sector continues to enjoy significant affinity. Fuelled by strong demand for Grade A commercial developments, investments in the office sector continue to grow from strength to strength. As 2023 witnessed record-breaking office space leasing activity, global institutional investors remained committed to building office portfolios in India. Office-led investments had a commanding 56 per cent share in total real estate inflows in 2023. Along with envisaged momentum in alternative assets, industrial & warehousing, and residential sectors in the next few quarters, the office sector will continue to dictate India's real estate investment ecosystem.” said Vimal Nadar, Senior Director and Head of Research, Colliers India.

Industrial and warehousing surged 2x times in 2023

• The industrial and warehousing segment saw a noteworthy two-fold rise with about $0.9 billion in inflows, marking the highest increase across all segments in 2023.

• This exceptional growth is credited to the sustained expansion of the industrial sector, thriving on heightened consumption levels.

• With micro-fulfilment centres, dark stores and AI-driven supply chains becoming an integral part of the industrial & warehousing segment, foreign investments in the sector are expected to rise multi-fold in the next few years.

Investments in alternatives bounced back in the last quarter

• After witnessing subdued activity in the first 3 quarters, investments in alternatives rebounded in the last quarter, taking the overall inflows in alternatives to $650 million for the year.

• Q4 2023 accounted for 65 per cent of the total investments in alternatives in 2023.

• Student housing accounted for about 60 per cent of the investment inflows within alternatives during the year.

This trend reflects a constant recalibration of investor and developer interests which aligns with students' preference for quality, and purpose-built accommodation.

Real Estate Investment Trends: Q4 2023

The final quarter of 2023 witnessed significant fluctuations and developments in real estate investment inflows across various asset classes and cities. Compiled data from Colliers outlines intriguing shifts in investor preferences and city-wise investment landscapes.

Asset Class-wise Investments

Alternatives lead with a whopping surge: Alternatives emerged as the star performer, experiencing a staggering 480% quarter-on-quarter increase in investment inflows, reaching $418.7 million. This surge highlights a substantial shift towards diverse assets like data centers, life sciences, and student housing.

Industrial & Warehousing Slump

Conversely, Industrial and warehousing witnessed a notable decline of 45 per cent quarter-on-quarter, dropping to $187.1 million from $340.3 million in Q3 2023.

Office and Residential Segments: Office spaces attracted increased investments, soaring by 71 per cent to $135.5 million compared to the previous quarter's $79.1 million.

Residential investments experienced a sharp decline of 70 per cent securing $81.0 million in Q4 2023 as opposed to $274.6 million in Q3 2023.

City-wise Investment Flows

Mumbai steals the show: Mumbai emerged as a frontrunner, witnessing a remarkable 50 per cent year-on-year increase in investment inflows, reaching $731.9 million in Q4 2023.

Delhi NCR and other/multi-city dynamics: Delhi NCR and other multi-city investments faced a decline of 30 per cent and 62 per cent year-on-year respectively, showcasing contrasting investment patterns.

Notable Deals and Platform Investments

Key deals involving investors like Singapore-based funds, Brookfield India Real Estate Investments Trust, CPPIB, HDFC Capital Advisors, among others, underscored the diverse portfolio preferences across cities and asset classes.

Conclusion

The fourth quarter of 2023 delineated a mixed landscape for real estate investments. While alternatives soared, traditional sectors like Industrial & Warehousing experienced a setback. Mumbai emerged as a promising destination, reflecting a burgeoning investor interest. These fluctuations underscore the dynamic nature of the real estate market and the evolving investor sentiment toward diverse asset classes and geographic locations.