India's institutional real estate investments hit USD5b in 2020

It’s almost on par with 2019 totals of USD5.4b.

Institutional investment in Indian real estate staged a smart recovery during Q4 2020 with USD 3.5 billion investments. As a result, 2020 closed with USD 5 billion investments, equivalent to 93% of 2019 transactions (USD 5.4 billion), despite a sudden halt brought on by the pandemic. The 2020 comeback holds significance when seen against the pace and percentage of the recovery from the last global financial crisis (GFC).

According to JLL, not only did the post-GFC recovery phase take more than three years, but the drop in 2009 was more than that witnessed in 2020. Over the years, investments have moved in tandem with reforms and maturity in the real estate sector. Moreover, various structural reforms during the last decade have brought much needed transparency and accountability to the sector.

A deeper analysis of institutional investments in 2020 indicates that 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 USD 3.2 billion accounted for 65% of the total investments in 2020. These investments by large global funds in times of uncertainty indicate the availability of quality assets at attractive valuations.

Here’s more from JLL:

Large portfolio deals validate the investment potential of Indian real estate

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 centres. The Blackstone Group took over 21 million sq ft of completed and under construction office, retail and hospitality assets from Prestige Estate Ltd. for around USD 1.2 billion.

Similarly, the Brookfield Group entered into an agreement with RMZ Developers to acquire around 12.5 million sq ft of office and co-working assets for around USD 2 billion. Office assets account for a major share of investments in both these transactions, indicating the strength of the asset class. India’s Grade-A office stock of 629 million sq ft as of Q4 2020, with sub-5% vacancy levels in Bengaluru, Hyderabad, Chennai and Pune as well as in prime sub-markets of Mumbai, Delhi NCR and Kolkata, make the asset class ideal for investments.

Office assets account for a major share of investments in 2020

The two major deals in 2020 indicate that office assets account for a major share of the portfolio apart from retail and hospitality assets. The comparison of deals in 2020 with that in the previous year indicates that office assets continued to attract the highest share of investments. Though direct investments in warehousing were not reported, dedicated platform funds and developers were reported to be investing in the construction of warehouses to meet the growing demand from the e-commerce industry.

India’s office sector has witnessed continuous growth over the last four years with the average annual net absorption crossing 30 million 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 technology sector driven office demand is expected to grow further and keep office absorption robust. To add to it, the success of two listed REITs has provided a new route for investments.

Read the full report here.