National, 8th August 2019: Private equity in real estate strengthened with a 10% rise in H1 2019 (at INR 29284 cr / USD 4.2 bn), even though investments in Q2 2019 declined by 34.4% q-o-q. NBFC lending activity coming to a halt with a dearth of refinance available for residential segment contributed to the deceleration in the quarterly fund flows. Infact, investments in residential segment during H1 2019 were the second lowest in the last 5 years (since 2015), compared for the H1 periods, standing at just INR 5610 crores.
The office segment remains a hot investment target, garnering INR 6280 crores from institutional investors, accounting for a 54.1% share of the total investments in Q2 2019. In fact, the investments were higher by almost 37% in H1 2019 compared to same period last year. Strong office demand, low vacancies and rising rents continue to keep the momentum going in PE activity. The success of the Blackstone-Embassy REIT has also injected momentum in the commercial office investment space with key learnings for institutional investors around portfolio creation, management and returns.
Retail and warehousing/logistics sectors attracted 12.1% and 7.9% share, respectively, in the Q2 2019 fund flow. Half yearly investments in both these asset classes strengthened with a growth of 21% and 62% on a y-o-y basis respectively. ADIA backed Lake Shore India Advisory invested INR 1400 crores in an ongoing retail project in Gurugram in a key deal in the retail asset class in Q2.
At a city level, Mumbai attracted the highest investment inflows at INR 6100 crores with a 52.6% share of the fund flows during Q2 2019. This was followed by Pune and Delhi NCR attracting 12.5% and 12.1% of the fund flows respectively. Multi-city investments (all of which were in the office sector) constituted 15.0% of the quarterly fund flows.
Foreign investors accounted for 59% share of all investment activity during the quarter, with an additional 21% share contributed by fund investments by the platform route. Domestic lenders were largely absent with a virtual standstill in NBFC lending, with only global PE-backed NBFCs scouting for the right opportunities in the residential market.
Trends in the private equity space:
- Platforms, JV alliances between investors & development partners on an upward trajectory: Private equity fund – developer partnerships are on the rise with a growth of 26.8% in H1 2019 in such investments (deployment) that stood at INR 7434 crores, a 25% share of the total H1 investment flows.
- Platforms being created across asset classes: Signalling the long-term commitment of foreign institutional investors in the real estate sector, a large number of platforms continue to be formed. Q2 2019 noted formation of three major platforms in hospitality, retail and industrial sectors. Singapore’s GIC and Indian Hotels Corp Limited formed an INR 40 bn platform for acquisition of operational upscale hotel assets. Warburg Pincus and Runwal Group created a USD 1 bn platform targeting investment and development of retail assets across India while Puravankara Ltd and Morgan Stanley formed a warehousing platform targeted at developing industrial parks in South India.
- Redevelopments and greenfield projects gaining investor attention: With most of the core and core-plus office assets been acquired or invested into by institutional investors and sovereign funds, the focus is shifting towards greenfield developments through land acquisitions or eyeing old buildings with an aim of redevelopment.
- Investment in alternative asset classes to watch out for: As investors tread cautiously on investments in the conventional residential sector, the emerging segments like student housing and co-living are coming on their radar, with the segment beginning to see creation of platforms with a long-term bet on alternatives.
PERE INFLOWS (INR CRORES)
|Residential||Office||Hospitality||Retail||Mixed Use / Others||Industrial||Total|
|We expect that the activity in the commercial sector, primarily office shall continue on a strong footing with retail platforms and acquisitions of key retail developments also on the anvil. Warehousing/logistics is likely to find strong investor support through existing dry powder and plans being firmed up by global players. It may still be early days for a quantum increase in PE investments in alternatives such as co-living and student housing but one can expect action in the significant yet untapped rental housing space. Creation of 1large PE backed platforms are also likely driven by the venture capital. The residential segment is likely to face a further period of strife as NBFCs struggle with liquidity woes. In the latest Union Budget, government has offered support to financially-sound NBFCs but we are in for a period of consolidation among the developer as well the NBFC segment
By Anshul Jain, Country Head & Managing Director, Cushman and Wakefield India