Despite a sudden halt brought on by the COVID-19 pandemic, institutional investment in the Indian real estate staged a recovery during Q4 2020 with $3.5 billion investments, a new report has said, adding Bengaluru continued to attract maximum investments.
As a result, 2020 closed with $5 billion investments, equivalent to 93 percent of 2019 transactions ($5.4 billion), as per JLL’s ‘Capital Markets Update: Q4 2020’ report. As many as 27 deals were transacted in 2020 over 54 in 2019.
Office assets account for a major share of investments in 2020 at $3,102 million compared to $460 million for residential.
The pandemic led to pull back in investments due to uncertainty over income stability and return to normalcy. However, large global funds took this opportunity to negotiate portfolio deals with developers who offered quality rent yielding assets in cities with a higher presence of global technology players as well as global in-house centers.
An analysis of institutional investments in 2020 indicated the recovery has been narrow-based, as 27 deals were transacted in 2020 over 54 in 2019. The two large portfolio deals with an estimated value of $3.2 billion accounted for 65 percent of the total investments in 2020. These investments by large global funds in times of uncertainty validate the investment potential of Indian real estate, the report said.
Office assets account for a major share of investments in 2020
The two major deals in 2020 the Blackstone Group taking over of 21 million sq. ft of completed and under construction office, retail and hospitality assets from Prestige Estate Ltd. for estimated $1.2 billion and the Brookfield Group’s entering into an agreement with RMZ Developers to acquire around 12.5 million sq. ft of office and co-working assets for around $2 billion indicate that office assets account for a major share of the portfolio deals.
“India’s office sector has witnessed continuous growth over the last four years with the average annual net absorption crossing 30 mn sq. ft, leading to steady rentals and capital appreciation till the onset of the pandemic. Global investors, looking for stable yields and regular returns, believe that the technology sector driven office space demand is expected to grow further and keep absorption robust”, said Samantak Das, Chief Economist and Head of Research & REIS (India), JLL.
The Indian economy is hence expected to bounce back and grow by 8.8 percent during the calendar year 2021. The backdrop of economic recovery and return to normalcy is expected to bring visibility to the income stability of rent yielding assets, which will help in asset pricing. Investors are likely to get more decisive and deploy the dry powder aggressively.
Investments are expected to gain momentum during the second half of 2021 as investors increase their exposures. Listing of forthcoming REITs to drive investment volumes in 2021, it said.
Sustainable core office assets to be favoured by investors as they align with occupier demand and provide income stability. Logistics and data centres to attract a new set of investors and platform deals in the logistics sector likely to remain active as the segment benefitted from growing e-commerce demand as well as pandemic induced demand for cold storage facilities from pharma sector, it said.
As for recovery in the residential segment and changes in FDI regulation could ignite investment appetite for mid and affordable housing projects, it added.