Capital investment in real estate touched $7.8 bn in 2022, 48% of which was in land deals

Bengaluru had 26,030 delayed or stalled housing units worth Rs 28,000 crore as of May 2022, according to ANAROCK Research. (Representative Image)

Overall capital investment in the real estate sector touched $7.8 billion in 2022,  up 32 percent year-on-year (YoY). The largest chunk (48 percent) went into land deals,  followed by the office sector (35 percent), according to the India Market Monitor 2022 report by CBRE.

As much as 44 percent of the total capital inflow into site / land acquisitions was deployed in residential developments, while 25 percent was committed to mixed-use developments.

With the highest share of investments, Delhi-NCR overtook Mumbai. Cumulatively, the two cities accounted for over 56 percent of the investments.

With nearly a 51 percent share of investments,  institutional investors led the charge, followed by developers (32 percent). Institutional investors continued to infuse cash in greenfield and brownfield assets, whereas developers remained primarily focussed on greenfield projects.

As many as 57 percent of the investors were foreigners. These included investors from Canada (23 percent) and the US (15 percent), who collectively pumped in nearly 37 percent of the capital, the report said, adding that 43 percent of the investors were Indians.

Equity inflows in 2023 are expected to remain steady but investors are expected to be cautious in the first half owing to recessionary fears in the US and Europe. The year could see the listing of India’s first retail REIT (real estate investment trust), which would widen investment avenues for investors.

A few large institutional investors with a strong presence in the Indian office sector could diversify their portfolios by including I&L (industrial and logistics) and retail projects. We may also see the entry of some new investors in the real estate landscape. Partnership models could gain prominence to mitigate risk and navigate operational challenges, especially amid external uncertainties, the report said.

40 percent increase in office leases

The office sector witnessed the absorption of 56.6 million square feet (sq ft) in 2022, of which 15.3 million sq ft was in Q3 — a 40 percent YoY growth in leasing. As much as 50.6 million sq ft was released into the market in 2022, 15 million sq ft of which was in Q3 alone.

The cumulative share of Bengaluru, Delhi-NCR, Mumbai, and Hyderabad in office leasing stood at 74 percent, according to the report.

Rental recovery continued across several cities due to sustained recovery in leasing, moderating vacancy levels, and persistent demand for investment-grade assets.

Key sectors that drove leasing in Q4 2022 included technology (32 percent), flexible spaces operators, (11 percent), engineering and manufacturing (10 percent), BFSI (9 percent), research, consulting and analytics (8 percent), life sciences (6 percent), and infrastructure, real estate and logistics (6 percent)

Economic slowdown in 2023 in a few developed economies could likely hurt profitability, especially in the technology sector. However, the full impact of these challenges on global corporates' leasing decisions is yet undetermined, the report added.

India’s cost-effectiveness and abundance of talent could help sustain leasing activity over 2023, although it is expected to lag behind the 2022 peak. Consequently, the growth of new GCC (global capability centres) and expansion of existing centres by global firms would persist in the medium to long term.

n order to ramp up return to office (RTO) plans, companies are likely to formulate relevant RTO and hybrid working policies, identify new work styles, and gauge employees’ preferences through surveys, the report noted.

“The Indian economy is likely to remain steady despite tightening monetary conditions and recessionary global headwinds. Even though there was a challenging scenario across developed economies, retail leasing activity scaled a new high in 2022. Given the robust supply pipeline planned for 2023 and strong domestic consumption, leasing activity is anticipated to remain steady. We also expect more international brands, especially in the F&B (food and beverages) space, to enter the country,” said Anshuman Magazine, Chairman and CEO, India, South East Asia, Middle East, and Africa, CBRE.

2.95 lakh housing units sold in 2022; Sales rise by 46%

As many as 295,000 housing units were sold in 2022, a 46 percent YoY growth in sales. Of these, 70,000 units were sold in Q3, a 12 percent YoY growth.

As many as three lakh units were launched in 2022, of which 76,000 units were launched in Q3. Mumbai, Hyderabad, and Pune comprised 71 percent of the launches in 2022.

The report noted that a strong project pipeline amid healthy demand and low unsold inventory levels could lead to a rise in capital values in select pockets, although the growth would be slower than that witnessed over the past year.

Higher capital values and the rise in home loan rates (almost 2 percentage points in the past few quarters) could impact purchase decisions, primarily in the budget to mid-end segments.

Listed players, specifically tier-I developers, could continue to deleverage/strengthen their balance sheets through positive cash flow generation and fund-raising activity. More players are expected to list their companies on bourses, the report said.

Retail leasing touches 4.7 mn sq ft

According to the report, retail leasing grew 21 percent YoY to 4.7 million sq ft in 2022. Supply stood at 1.4 mn sq ft.

Overall, Bengaluru and Delhi-NCR had a major share (61 percent) of leasing activity, while Chennai, Hyderabad, and Pune had a 9 percent share each. With a share of 86 percent, supply addition in Bengaluru was the highest, followed by Pune (14 percent). Key sectors that drove leasing activity were fashion and apparel, F&B, hypermarkets, homeware, and department stores.

Tier II, III, and even IV locations are poised to gain traction as retailers look to leverage the spending power of these towns and cities. Hybrid shopping focusing on the convergence of offline and online is likely to remain a key retailer strategy, the report added.

Domestic brands are likely to strengthen their presence across all retail categories, with consolidation, acquisition, and partnerships remaining key to their expansion strategies, it noted.