India records second highest Q1 capital inflows in over a decade

Capital inflows hit a whopping US$2.04b during the quarter.

According to Cushman & Wakefield, the first quarter saw an investment volume of INR 148.6 bn (USD 2.04 bn) on the back of closure of the first phase of Blackstone – Prestige Estates transaction. Despite a 45% q-o-q drop, the capital inflows grew by a staggering 3.5 times y-o-y and recorded the second highest Q1 inflows in more than a decade. 

Infact, marquee investors are seeing the current situation as an opportunity to scout for good opportunities despite the prevailing headwinds compelling them to put a temporary halt on closures. This is evident from foreign investors accounting for an 85.6% share of the Q1 investments.

Here’s more from Cushman & Wakefield:

Blackstone led the largest transaction for the quarter with the PE major acquiring certain assets out of the 12 completed office, retail and hospitality assets of Prestige Estates, solidifying its leading position in the commercial space of the country. In key transactions in the office segment, Ascendas India Trust made a forward purchase of an upcoming project in North Bengaluru and Varde Partners invested in two projects of Phoenix Group in Hyderabad. As part of its first investment under the Insolvency and Bankruptcy Code, Kotak Special Situations Fund acquired an office asset from Prius Commercial Projects in South Delhi. 

In another key transaction, Godrej Fund Management bought a 9-acres land parcel in Pune for a commercial development. Office segment held a 26.3% share in the quarterly investments while multi-segment investments (led by Blackstone – Prestige deal) accounting for a major share of 51.6% during the quarter. 

The quarter saw the third REIT listing of the country, the only institutionally-managed REIT, with a strong 8-times oversubscription. Market response for the REIT listings by major investors over the last several quarters is paving the way for greater maturity in the commercial space, despite short to medium term challenges caused by the pandemic. 

Furthermore, allowing insurance companies to invest in debt securities of REITs reiterates the growth of India’s REIT story given the long-term view on investments placed by insurance firms. With a 14.6% share in the quarter’s investments, industrial segment continued to garner the attention of investors with expectation of more closures with a few important transactions by Mapletree and Blackstone in the pipeline. 

The segment attracted INR 21.6 bn (USD 0.3 bn) with acquisitions by GIC – ESR, Ascendas India Trust and Indospace on the back of solid growth seen in this domain. Residential segment, which continues to face liquidity issues, had a 7.5% share in Q1 with inflows of INR 11.2 bn (USD 0.15 bn) in the form of debt investments from investors including HDFC Capital Advisors, Motilal Oswal Real Estate, ICICI Ventures among others.

Equity investments with a 73.3% share in Q1 inflows only corroborated the long-term investor confidence in Indian real estate in a trend that continues to be seen over the quarters. Two key partnerships were formed during the quarter with Embassy Group and Canada’s Ivanhoe Cambridge coming together to set up a USD 500 mn platform to develop premium office projects, initially focusing on Bengaluru and Chennai. RMZ Corp. partnered with CPPIB to develop office projects in Chennai and Hyderabad in the second platform for the quarter. 

Strong market fundamentals backed by occupiers leasing large spaces along with a robust demand pipeline in these cities is a major reason for investors’ focus on the Southern markets. Infact, large institutional players are utilizing the current period to build up their asset portfolios by either greenfield developments or through acquisitions to cater to the demand for quality spaces in the post-pandemic world. 

Retail segment saw investments through the multi-segment Blackstone – Prestige deal with the former acquiring an 85% stake in multiple malls across Bengaluru, Hyderabad, Mangalore, Mysore, Udaipur. The segment which is likely to bear some more pain before picking up did not see any investment inflow last year. 

At a city-level comparison, multi-city investments had the highest share of 51.4% in the private equity inflows for Q1 with Blackstone acquiring assets of Prestige Estates in cities including Bengaluru, Hyderabad, Mysore among others. Hyderabad held a 13.7% share with investment inflows in office and residential segments. Delhi NCR and Bengaluru had respective shares of 10.2% and 9.7% in the Q1 investments.