International investors are exploring opportunities to invest in Grade A commercial assets, industrial, warehousing and data centres during COVID-19 times as the yield is around 8.5-9 percent compared to yields for similar assets in core APAC investment markets and policy interest rates are low, says a report.
India’s commercial real estate may remain strong due to the availability of quality assets at less than one dollar per month per sq ft and availability of low cost skilled labour and hence it is decoupled of local economic issues to some extent, Colliers Research has said.
The key factor that is driving the prices of APAC investment assets in general is recession caused by COVID-19.
The second is record low policy interest rates – the result of a decade of loose monetary policy and recent emergency rate cuts. Real (inflation-adjusted) interest rates are very low or negative in developed APAC countries, though edging up in certain markets as inflation declines, it said.
Against this backdrop, yields of 2.8 percent to 5.8 percent for prime/Grade A office assets and of 3.5 percent to 6.1 percent for logistics/ industrial assets in core APAC investment markets look appealing.
In India, at an average cap rate of 8.5 percent on office assets, there is a spread of over 3 percent compared to 10-year government bonds, which makes the investment attractive in commercial core stabilised assets. This gap has only widened in past three months with consistent decrease in policy interest rates, it said.
“There are limited core Grade A assets, and hence investor may find it opportune to invest at early stage, either equity or forward purchase and control the quality and specifications. Industrial/ warehousing is also similar trend with strong demand from institutional capital towards this asset class. The demand of cloud infrastructure is leading to various data centres and similar platforms coming in existence and this industry is taking a sizeable shape,” says Piyush Gupta, managing director, Capital Markets at Colliers International India.
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