Private Equity investment in real estate is expected to bounce back to $ 6 billion, registering a 30 per cent year-on-year growth in 2021 on the back of an improving economic sentiment supported by policy reforms and growth in key emerging sectors, according to the latest report by Savills India, a global property consultancy firm.
The next wave of investments will be driven by growth in warehousing, affordable housing and data centres apart from the commercial office segment which will continue to see steady improvement, said the report, ‘Beyond The ’20: Private Equity in India Real Estate’. A likely repair of the bruised economy, improving trade relations, policy support and progress on the vaccination front, are the key factors that would drive the sentiment henceforth.
Savills India’s estimates for private equity investment in the sector are based on factors like overall economic and infrastructure growth, growth in sectors such as manufacturing, logistics and e-commerce. Geopolitical scenario and policy enabling environment are also considered to be key determinants.
While PE investment in real estate in 2020 is expected to contract at $ 4.6 billion due to decline in economic activity, investors are likely to adapt themselves in the altered world order and steadily return to the market with evolved strategies.
As per the report, the warehousing and logistics segment has been among the most resilient asset classes in the ongoing pandemic. Warehouse leasing is expected to increase by 60 per cent in 2021 as compared to 2020, keeping investors riveted and on the lookout for investment opportunities.
Savills Research also expects private equity investors to assess an opportunity of around $330 million in the industrial and warehousing segment in 2021. This is approximately 17 per cent higher compared to the average annual investments during the period of 2016-2020.
“2020 has been a watershed year for businesses and industries across the globe. Indian economy has weathered this unprecedented crisis fairly well, which is indicative of its strong inherent fundamentals. Going forward, policy steadfastness and implementation will hold the key to revival of investment. In our view, the investors will proceed with caution in early days, but 2021 is likely to experience a fair amount of PE investment owing to inherent strengths and potential of alternate asset classes in real estate,” said Anurag Mathur, CEO, Savills India
From 2000 to 2015 almost 60 per cent of PE investment was in residential segment until the focus of fund managers shifted to ready office assets supported by buoyant demand from 2014 onwards and the segment has attracted approximate 40% of investment. Interestingly, the last 2-3 years have seen notable interest in newer asset classes such as student housing, data centres, warehousing and opportunistic assets.
“For the investor community and private equity players, the warehousing segment is becoming an asset class of choice in times ahead. While the leasing activity in the industrial and warehousing segment has declined year-on-year, we expect rentals to see a steady rise as quality supply gets added to the stock. The world of private equity would be aiming for some of their most lucrative opportunities in the time to come,” said Diwakar Rana, Managing Director, Capital Markets, Savills India.
Additionally, Savills India carried out an investor sentiment survey.
Key findings from the survey are shared below
- 81 pc expect transaction volumes in 2021 to be similar to 2019 or lesser by up to 20 pc.
- 97 pc opined that asset purchase and structured finance will be most preferred.
- 69 pc suggested significantly higher investor interest in non-performing loans and stressed projects.
- Strongest activity is likely to be observed in warehousing segment. Data centres are likely to follow closely.
At the other end of the spectrum, retail investments had witnessed a dwindling pattern even in the pre-pandemic period, primarily due to ever increasing adoption of ecommerce by Indian consumers and lack of incremental supply of premium quality retail malls in major cities. New mall completions are reduced by almost 50 pc in 2015-19 from the previous five-year period. Going forward, however, investor interest should improve, as it hinges significantly on planned supply and distress opportunity acquisition, both of which are considerable at present.
“The Government has been taking steps to create an enabling business environment and boost investments. Both foreign and domestic investors are relooking at some of the untapped areas of investment and have reposed faith across sectors, including real estate,” said Arvind Nandan, Managing Director, Research & Consulting, Savills India.