Mumbai : Knight Frank India in its latest research report, Investments in Real Estate - Trends in PE Investment (Q1 2021 update), recorded that Indian real estate attracted private equity (debt+equity) investments of $3,241 million across 19 deals in Q1 2021 (January-March) period. In the first quarter of 2021, the investment in the sector has grown by 16 times compared to $199 million in Q1 2020.
The investments in Q1 2021 in value terms were ~80% of that witnessed in full year 2020 and ~48% of full year 2019. The strong momentum in Q1 2021 was predominantly driven by two major factors: a spill over of certain deals from 2020 and the rise in investor confidence due to the drop in covid-19 infections during early parts of Q1 2021, which had created some ripples of positivity in the economy. The sustainability of this momentum in investors sentiments will therefore depend on how soon the second wave of infection subsides and also the pace of vaccination. Of the total PE investments in real estate, the office segment attracted 71% share, followed by retail at 15%, residential and warehousing with 7% each respectively.
Mumbais residential assets took the largest chunk of PE capital for residential investments (debt + equity), during Q1 2021, with the city recording three major deals worth $144 mn.
Explaining the investment trend in the real estate industry, Shishir Baijal, CMD, Knight Frank India, said, The deal street market of Indian real estate witnessed an impressive surge in both value and volume of private equity investments in the first quarter of 2021, when compared to the entire year of 2020. Office assets continue to be the preferred segment attracting over 70% of PE investments Q1 2021 as the segment moves towards maturity which includes sustained demand, stability in rental income and change in ownership profile over long -term. Investors are expecting demand to recuperate faster as the pace of vaccination increases.
Shishir further added, While Q1 2021 has been an encouraging quarter for PE investments, however, the upward trajectory can be impacted by the rising second wave of COVID-19 infections in India which started in the month of April 2021. The sustainability of revival in investor sentiments will therefore depend on how soon the second wave of infection subsides and the pace of vaccination.
The office market remained the preferred segment for investors due to the strong fundamentals (availability of large English speaking STEM talent, relatively low rentals, established knowledge outsourcing ecosystem) of the Indian office market. Since 2011, the segment has garnered $18,361 million of equity investments. In Q1 2021, the segment transacted seven deals amounting to $2,148 million. Around 31.5 million sq ft of the office assets were transacted in Q1 2021.
25% of the PE (equity) investments in office segments since 2011 have pumped into new development and under-construction projects. The primary reason for this is the paucity of mature transactable assets in the Indian office market. In the latest period - Q1 2021, the trend accentuated further, with 55% of PE investments in new development and under-construction projects. In 2016, ~86% of the investments were into ready assets and only ~14% were into new development and under-construction projects.
In terms of investor origin split for investments in Q1 2021, Canada led the chart with USD 915 million, followed by United States of America with USD 830 million, Singapore with USD 341 million and India with USD 62 million.
In Q1 2021, Bengaluru took the largest quantum of office investment (equity) worth USD 1,528 million with three deals, followed by Chennai – Hyderabad worth USD 415 million in a single deal involving assets across the 2 cities, Hyderabad also has USD 143 million from another deal and National Capital Region (NCR) with USD 62 million from one deal.
In Q1 2021, the residential sector witnessed seven deals worth USD 234 million, which was 64% of the total investments that was witnessed during the entire 2020 and 38% of that in 2019. In volume terms (number of deals), the investment activity touched 100% of 2020 levels and 39% of 2019 levels. With government interventions and other measures, post the lockdown was lifted between Q2 and Q3 2020, All-India residential sales grew by 5% YoY in Q4 2020 and by 44% YoY in Q1 2021.
In Q1 2021, Mumbai took the largest quantum of residential investment (equity + debt) worth USD 144 million, followed by the NCR with USD 55 million and Chennai by USD 24 million
In Q1 2021, the warehousing sector attracted PE investments worth USD 216 million which was higher by 272% YoY going up from USD 58 million during the same period last year. Globally, investors expect the warehousing segments to emerge stronger from the crisis, driven primarily by the renewed growth potential of e-commerce segment, which would lead to further demand for warehousing spaces. A significant chunk of consumer spending is expected to shift online due to restrained consumer mobility and repeated lockdowns.
Rajani Sinha, Chief Economist and National Director – Research, Knight Frank India said, The jump in PE inflow into real estate in Q1 2021, has been a sigh of relief for the sector. The outlook for the sector had been improving with improvement in the pandemic situation in India towards the beginning of 2021. The spill over of certain deals from 2020 also helped push up the capital inflows in Q1 2021. However, with severe second wave of COVID infection in India, we will have to be cautiously watchful of the PE inflows trajectory for the next few months.
