Institutional real estate investment in India fell 14% in 2021
Institutional investments in the Indian real estate sector closed at $4.3 billion in 2021, down 14% from the previous pandemic year, according to a report by global real estate services firm JLL, reviewed by Capital.com
Investments in 2021 have been very broad-based, with the first three quarters reporting an improvement over the same quarter last year. That compares to the two $3.2 billion portfolio deals announced in the last quarter of 2020, which helped fuel a strong recovery, the Capital Markets Update Q4 2021 report said.
There were 57 transactions in 2021 compared to 27 transactions in 2020. Investments in 2021 were spread across different sectors and were much more diversified compared to the previous year.
The start of the third wave led to general restrictions, which indirectly affected investment dynamics in the last quarter of the year, the report says.
Severe effects of Covid
“One of the main reasons for the decrease in investment volume was the temporary collapse of the investment process due to the severe impact of the second Covid wave in the first half of 2021. Although the investment climate showed signs of recovery in the third quarter of the year, the beginning of a new variant and uncertainty about its impact disrupted the fourth quarter 2021 deal,” said Lata Pillai, Managing Director and Head, Capital Markets, India, JLL.
“However, numbers aside, it’s important to note that there is a clear sign of a broad-based recovery, with positive investor sentiment across asset classes. I believe our industry is poised for a much stronger 2022 given the current investment dynamics and deal flow that we are seeing on the ground,” she added.
Hyderabad, Mumbai, NCR leadership
The Indian cities of Hyderabad, Mumbai and the National Capital Region (NCR) accounted for 45% of the investments. Hyderabad and Mumbai each accounted for 16% of the total investment in 2021, while NCR-Delhi was third with 13%.
Investments were fairly diversified across cities over the year. On the other hand, consolidation in real estate has led to a parallel trend of increasing investment at the corporate level, with mergers and acquisitions becoming more important.
Hyderabad has led the investment scenario with core and development stage deals from leading global funds. The city has been favored by well-known office space developers who are attracting quality tenants in the pre-commitment phase.
Office supplies in 2022 have already experienced 25% pre-letting in selected projects and have driven investment momentum. Mumbai has seen increased interest in the residential segment due to the strong rebound in residential property sales over the year.
Living is celebrating a comeback
A standout feature of investments in 2021 has been the comeback of the residential sector, which has the second highest share at 25%. The residential sector attracted 2.3x investment of $1 billion compared to $460 million in 2020.
The renewed interest in the industry is largely driven by the strong recovery seen, with robust revenue growth of 47% in the first nine months of 2021 over the same period in 2020.
Investments in the office sector accounted for the largest share at 31% in 2021, while it was severely skewed in 2020 due to two large $3.2 billion portfolio deals. Net office space absorption increased marginally by 2% year-on-year to 26.2 million sq ft in the top 7 cities in India year-on-year.
Warehousing, logistics and data centers continue to see increasing interest from investors, with logistics accounting for 20% of total transaction volume, while data center investments are picking up with some announced joint ventures in this segment.
outlook
Continued policy support in the form of accommodative policy stance, expected boost in infrastructure spending and committed dry powder from institutional investors are expected to propel investment in 2022 to match 2017-2020 momentum.
Build-up of asset portfolios for listing of new Real Estate Investment Trusts, increased competition for high quality assets, geographic and asset diversification and strong interest in logistics and data centers in the “new normal” will be the key investment drivers in 2022.
Read more: India’s tire demand grows 13-15% this fiscal year: ICRA
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