PE investments in retail real estate down 63 per cent in January-September: Knight Frank

Representative image

Private equity investments in retail real estate space fell 63 per cent to $303 million during January-September as investors were concerned about possible impact of high inflation on consumption, according to Knight Frank.

The private equity investments in retail stood at $817 million in the corresponding period of the last year.

"Investors avoided the retail sector due to concerns about the potential negative effects a high inflation environment would have on the sector,” real estate consultant Knight Frank India said in a report 'Trends in Private Equity Investments in India (9Month 2022). However, the consultant felt that the retail sector would continue to observe capital commitments from investment platforms that remain bullish on its growth prospects.

Since 2011, the retail real estate has attracted $3,944 million worth of PE investments through 31 deals. Unlike office assets, investor interest in retail goes beyond major metros, the consultant said.

Overall, Knight Frank India said that Indian real estate sector received PE investments amounting to $4.2 billion across office, warehousing, residential and retail sectors during January-September 2022, a drop of 25 per cent from $5.6 billion registered in 9M 2021. "Rising inflation, higher interest rates, and geopolitical unrest, all of these contributed to a spike in volatility and slowdown in private equity (PE) transactions in 2022,” the consultant said.

In terms of average transaction size, the sector saw average deals of $191 million during January-September 2022, 53 per cent higher than the average deal size of $125 million in the same period in the previous year. Foreign private equity investors continued to remain the largest contributors.

Foreign private equity investors continued to remain the largest contributors. During January-September 2022, the office sector accounted for 55 per cent of all PE investments, followed by warehousing (29 per cent), residential (9 per cent), and retail (7 per cent). Mumbai received the highest investments accounting for 60 per cent of the total investments in the first nine months of this calendar year, followed by Bengaluru with 17 per cent share.

On asset-wise data, the residential segment received investments worth $370 million in January-September 2022, a 63 per cent decline from $987 million in the year-ago period. Investors’ exercised caution because of rising interest rates and increasing commodity prices.

The office sector received investments worth $2.3 billion in the first nine months of 2022 as against $2.7 billion in the corresponding period of the previous year.

About 67 per cent of the investments were in ready assets, while 33 per cent of the investments were made in new and under-construction developments as investors refrained from undertaking risky bets.

The investment volume in warehousing segment increased by 11 per cent year-on-year to $1.2 billion in January-September 2022 compared to $1.1 billion received in the same period last year.

"Warehousing segment registered the strongest growth compared to office, residential and retail segments as investor confidence in the sector remained high, owing to the ever increasing need for last-mile deliveries and logistics,” the consultant observed.

Robust demand for warehousing and logistics spaces amidst pandemic and a dearth of organised assets led to several greenfield investments during the year, it added. "The office segment continued to remain the most popular investment choice on the back of the resilience exhibited by investible grade office assets, while demand for warehousing sector improved on the backdrop of rising demand for third party logistics, manufacturing, and e-commerce,” the report said.