YEAR TO DATE PRIVATE EQUITY INVESTMENTS SURGE 22%: PRE-LEASED OFFICE REMAIN THE FLAVOUR

As per global real estate consultancy, Cushman & Wakefield’s latest report on Private Equity investments in Real Estate (PERE), the year to date (YTD till September 30), inflows in 2016 increased 22% to INR 283 billion (USD 4.24 billion), up from INR 232 billion (USD 3.60 billion) recorded during the same period last year. About INR 92 billion (USD 1.4 billion) of these investments were recorded during the third quarter of 2016. While the number of deals closed during the third quarter moderately declined by 3% quarter on quarter (q-o-q) to 32, the total investments increased by 1.2%, reflecting increased confidence amongst investors to make larger investments. The average deal size therefore increased from INR 2.75 billion (USD 41 million) in Q2 2016 to INR 2.87 billion (USD 43 million) in the third quarter of 2016.

Owing to the continued interest in pre-leased office assets, the YTD 2016 investments in the commercial office assets have already surpassed the total investment received during the calendar year 2015. Moreover with a few large deals for office portfolios in active discussion and deal closure stages, the fourth quarter is expected to record the highest annual investments made in the asset class. The y-o-y change in investment in office assets has recorded an increase by over 50% as recorded in the third quarter.


Residential assets witnessed over 73% (INR 66,750 million / USD 1 billion) of the total PERE during Q3. Despite the largest share in total volumes, investments saw a moderate a moderate 3% decline when compared to that received in the same period in 2015. Within residential investments, Mumbai was the most preferred location that accounted for 63% of the share, followed by Delhi-NCR and Bengaluru accounting for 18% and 15% of the share, respectively. Domestic funds were most active investors in residential assets and accounted for 82% of the total investments made in the asset class. The cumulative investments in the residential assets increased 9% q-o-q in the third quarter of 2016. 

Anticipating a revival in the sector and given the potential to list under the real estate investment trust (REIT) retail assets are attracting large investments from various funds. Therefore, the YTD investments in retail assets during 2016 increased 273% to INR 38,000 million (USD 569 million), over INR 10,200 million (USD 156 million) noted during the same period of 2015.

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Anshul Jain, Managing Director, India, Cushman & Wakefield said, “There has been a steady shift in ownership of assets, especially office, from being privately held to institutionally held, moving in line with the global trend. This will further assist the Indian market to attract more and more investment in the sector. It also opens door to the successful implementation of REITs in India. Given that investible assets are fewer, we may see a moderate slowdown in investment in office assets in 2017, albeit end of 2016 still looking strong and promising. Even while Residential asset class continued to attract the highest volume, residential assets will continue to be dogged with challenges of end user purchases, which has led to a generic decline in the number of launches in the segment. Retail which saw a rise in interest from investors should also be seen with some caution as the investments have been made in fully leased successfully operating assets. While this trend could see a few more commitments in the 12- 24 months period ahead, this will not be the rising trends or be a salvage situation for ailing retail properties.” 


MUMBAI RETAINS ITS MARKET SHARE WITH 43% OF TOTAL PERE, HYDERABAD INCREASING ITS MARKET SHARE RAPIDLY

Attracting 43% of the total YTD investments, Mumbai retained its top position in PERE with Delhi NCR being a distant second, accounting for 27% of the share. While Mumbai witnessed inflows of about INR 121,130 million (USD 1.8 billion), Delhi NCR received INR 77,300 million (USD 1.2 billion). For both these cities, domestic funds accounted for the majority share in PERE during YTD 2016. Owing to stable government and its initiatives to attract investments, Hyderabad is fast emerging as one of the hotspots for PERE. PERE in Hyderabad have increased to INR 19,490 million (USD 292 million) from a mere INR 800 million (USD 12 million) recorded during the same period of 2015.