National, 31st October 2019: Private equity investment volumes for YTD 2019 figures are higher on comparable y-o-y basis, despite taking a dip by 13.9% q-o-q. Q3 2019 figure stand at INR 99.83 bn, as per data recorded by Cushman & Wakefield India. The reduced investment flows in the residential sector continued to further decline, recording over a 60% q-o-q drop in Q3. With real estate lending numbers slowing down due to the domestic NBFC stress, 83.5% of quarter’s inflows were in the form of equity capital infusion. This is also indicative of the fact that institutional investor interest continues to remain strong in the Indian real estate space.
The office segment continues to be the favored investment asset class, and there is expectation of further traction in the near term. Institutional interest in rent-yielding office assets continues to be backed by strong occupier demand with 2019 slated to surpass 2018’s leasing numbers for a new historic peak. With low vacancies and strong demand in key office markets, investor interest in this asset class continues unabated.
Mumbai led the Q3 investments at a city-level, with a 24% share, followed by Hyderabad and Pune with shares of 9.3% and 9.0%, respectively in fund inflows. In fact, Hyderabad saw the sharpest quarterly increase among all cities with investment inflows increasing by a multiple of 5.6X q-o-q. Multi-city investments (across Maharashtra and Haryana) had a 47.3% share in the quarter’s fund inflows with two notable transactions in the office and industrial segments.
Among major transactions in Q3, Blackstone Group agreed to buy the remaining 50% stake in the office assets of Indiabulls Real Estate in Mumbai and Delhi NCR having bought a 50% stake earlier in 2018. Virtuous Retail (the Xander-APG retail platform) announced an investment of INR 24 bn for acquisition of a land parcel in Thane, Mumbai for development of a retail project as part of a greenfield mixed-use project. Xander Investment Management acquired Weikfield IT Info Park in Pune from New Vernon Capital in yet another key office transaction during Q3.
Trends to look forward to:
- The successful REIT listing of Embassy-Blackstone platform with the scrip performing well post the listing bodes well for new REIT listings. With players like K Raheja-Blackstone next in line and likely to be followed by others like RMZ and Godrej Properties also contemplating future listings.
- Select core and core plus assets along with brownfield / greenfield developments shall remain on the investor radar as bigger portfolios remain extremely limited.
- Key asset classes including office, retail and industrial continue to remain favorable with institutional investors owing to the robust fundamentals, strong consumption demand and growing interest in the newer / alternative asset classes.
- The first successful REIT listing and creation of several platforms between foreign funds and domestic entities remain the highlights of the year so far.
PERE inflows (INR bn)
|Sector||YTD 2018||YTD 2019||Percentage change|
|Others (mixed-use, entity, etc.)||20.32||14.5||-29%|
|Source: Cushman & Wakefield Research India|
|A 19% upswing in investment activity on a year-on-year basis shows a positive outlook for the industry. We expect fund commitments across multiple platforms and asset classes that were set up over the last three to four years to be now deployed. The focus for these funds remains Office, Retail and Warehousing / Logistics segments. They are chasing a mix of core and core plus assets along with strategic brownfield / greenfield opportunities. Fresh REIT listings shall further add depth to the market and attract more investments, particularly in the office sector.