Private equity inflows at usd 6.8 billion in 2018; second only to the historical peak in 2017: Cushman & Wakefield India

• Office sector leads the investment inflows commanding 46.4% of the annual fund flows
• Mumbai recorded the largest share (27%) of PE investments among all cities during 2018
• The year noted formation of several platforms including ADIA – HDFC for affordable housing, HDFC – Prestige Estates for low& mid segment housing, Allianz – ESR for logistics and Warburg Pincus – Lemon Tree Hotels for student housing and co-living segments

National, 11^th February 2019: Demonstrating the high investor confidence in Indian real estate, 2018 recorded investment inflows of INR 462.68 bn (USD 6.8 bn). Even though a 10.6% y-o-y decline in investment volumes was seen, this was still second only to the peak investment volumes seen in 2017. The decline was also attributed to the NBFC liquidity crisis which brought funding from these vehicles to a virtual standstill in the last quarter, which ended up impacting the annual numbers.

Mumbai led with the highest share (27%) of investments amongst all cities, as was the case in the previous year as well. The city recorded the largest transaction for 2018 with Blackstone acquiring a 50% stake in two office assets of Indiabulls Real Estate. In another marquee transaction, Brookfield Asset Management acquired Equinox Business Park in Mumbai in the beginning of 2018.

Hyderabad captured the limelight with the city’s share in investment volumes rising from 2% (in 2017) to 17% y-o-y. Roust leasing activity volumes of 10 mn sf in 2018, with a strong pre-commitment flavour, where the city’s upcoming supply in 2019 is already preleased to the extent of 60% and continuing tight vacancies in its key office corridors, led to the city finding immense favour with institutional investors for quality office assets. Xander, Blackstone, Ascendas India Trust and Allianz-Shapoorji Pallonji platform committed INR 65.5 bn across four separate office transactions in Hyderabad. Chennai was third with a 13% share in investments with the city standing out for Q4’s largest PE transaction with Mapletree Investments acquiring SP Infocity from CPPIB-Shapoorji Pallonji.

The commercial office sector commanded a 46.4% share of the investment volume in 2018 at INR 214.8 bn. Signalling the strong interest in this asset class, investments in 2018grew by a multiple of 1.5 times compared to 2017 with foreign investors contributing a majority share. The Embassy-Blackstone REIT listing expected in the subsequent quarters will further enhance institutional interest in investible-grade rent yielding assets along with core plus and greenfield developments.

Residential segment investments accounted for a 29% share of the total. Though the percentage share was on par with the previous year, investment volumes in absolute terms saw an 11% y-o-y dip, standing at INR 133.2 bn. The major factor was the hit experienced on account of NBFCs suffering from a liquidity crisis which impacted disbursals and new deals with NBFCs being the major source of refinancing and lending for residential projects in the last two years. The highlights for the residential segment in 2018 included creation of new platforms with HDFC & Abu Dhabi Investment Authority committing USD 550 mn for affordable housing, with an additional commitment of USD 90 mn by NIIF. HDFC Capital Advisors also created a USD 390 mn platform with Prestige Estates for low and mid-segment housing. There are early signs of equity returning to this asset class with large platforms looking at established developers.

Industrial and warehousing segment constituted 6.2% of the annual investment flows at INR 28.7 bn in 2018. This is purely money invested into assets and does not consider platforms with committed but non-disbursed capital. The investment platforms between Ascendas-Firstspace and Allianz-ESR acquired logistics and warehousing assets in Chennai and Pune respectively. This sunrise sector is expected to witness further traction with the year recording a USD 1.2 bn fund raising by Indo space along with the ESR-Allianz tie-up worth USD 1 billion for developing and acquiring warehousing and logistics assets.

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Retail segment investments were a little slower with the year recording inflows of INR 19.9 bn, a share of 4.3% of the total. Investors’ interest in this asset class along with fund raising activity is likely to be maintained in the year ahead. Warburg Pincus is planning to form a USD 1 bn realty platform with Runwal Group for investment in retail-led mixed-use properties.

Hospitality investments made a strong return in the year with INR 20.25 billion invested through structured debt and entity sale transactions. While refinancing and strategic equity stakes were the preferred modes of investments, the asset prices in this category remain still quite attractive for investors to look at key, operational assets in relevant markets while looking at strategic buyouts of distressed assets in established office markets.

PERE INFLOWS (INR BN)

“Institutional investors’ appetite for Indian real estate continues to be strong led by office properties. The hospitality sector also made a noteworthy rebound, while retail, Industrial and mixed-use saw a leaner year compared to 2017, primarily on account of lack of quality products,” said Anshul Jain, Country Head & Managing Director, Cushman & Wakefield India. “We expect the private equity trend to be cautiously positive in 2019, especially given the slowdown in NBFC market provided there are no global economic or political shock’

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