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Thursday, July 25, 2024

Investment inflows in office sector rise, Colliers Report

Institutional investments into the office sector rose 2.5X YoY during H1 2023, at USD2.7 billion, signalling continued investor confidence in the growth & return potential of the sector. The share of office sector remained highest in the total inflows during H1 2023 at 74%, distantly followed by residential sector at 12% share. Led by office, institutional investment inflows into Indian real estate rose 43% YoY, at USD3.7 billion in the first half of 2023. Institutional investment inflows are already about 75% of the total inflows in 2022 despite a weak global economic environment. Hinging on the strong domestic economic outlook, the fundamentals of real estate asset classes including office, residential, amongst others remain strong & intact. Institutional investors have their bets on the office sector, on the back of increased opportunities, resilient demand and robust growth prospects over the next 2-3 years.

Sturdy & higher demand for Grade A office space, robust supply pipeline, enhanced transparency, and availability of exit avenues in the form of REITs amongst others have bolstered foreign investments in the office sector over the last 5 years. The first half of 2023 saw USD1.9 Bn of foreign investments in office assets, accounting for 71% of the total investments in the sector. Global investors continue to look at Indian office sector favourably, and have shown increased appetite for good quality income yielding Grade A office assets. While majority of the existing prominent office projects are already funded by top institutional investors, a healthy supply pipeline of more than 150 million sq ft (at different stages of development) across top 6 cities offers newer investment opportunities in the next 3 years. Investors in the spectrum are forming large Joint Venture (JV) platforms to deploy funds to tap the burgeoning opportunity and invest in upcoming office projects.

“Office sector is witnessing a re-calibration globally, and hence the decision to invest is also taking longer. Further, interest rates and inflationary pressures are also temporarily keeping the investors in wait-and-watch mode as the investors reprice the global macro risks. The appetite to invest remains strong with newer funds looking to enter the Indian market, and apart from owning yielding assets, there is a renewed interest in residential as well.” said Piyush Gupta, Managing Director, Capital Markets & Investment Services at Colliers India.

Investments inflows (USD mn)

Asset ClassQ2 2022Q2 2023Q2 2023 vs Q2 2022 (% Change)H1 2022H1 2023H1 2023 vs H1 2022 (% Change)
Office464.91,811.6290%1,108.52,719.2145%
Residential72.972.3-1%89.4433.4385%
Alternate assets*359.0-100%398.8158.2-60%
Industrial & Warehousing133.9179.8350.295%
Mixed use230.7-100%308.015.1-95%
Retail234.8-100%491.80.0-100%
Total1,362.32,017.848%2,576.33,676.143%

*Note: Alternate assets include data centres, life sciences, senior housing, holiday homes, student housing, etc.

Source: Colliers

CityQ2 2022Q2 2023YoY Change %Share % Q2 2023
Bengaluru7.6 –-100%0%
Chennai234.885.4-64%4%
Delhi NCR550.6698.127%35%
Hyderabad –127.3– 6%
Mumbai183.7348.390%17%
Pune385.7– -100%0%
Others/ Multi City –758.6– 38%
Total1,362.32,017.848%100%

*Note: The institutional flow of funds includes investments by family offices, foreign corporate groups, foreign banks, proprietary books, pension funds, private equity, real estate fund-cum-developers, foreign-funded NBFCs and sovereign wealth funds. The data has been compiled as per available information in the public domain

REITs gaining larger ground

REITs have corporatised Indian office market and favourable regulatory reforms have attracted more investments into the sector. While merely 11% of Grade A office stock across the top 6 cities is presently listed as REITs, there is a further unrealized potential of additional 57%. Given the current pace of investments in the sector, we are well placed to unleash this potential to inch closer to our counterparts in the APAC region.

“Investment inflows into the office sector touched USD1.8Bn during Q2 2023, highest over the last 10 quarters. The rising investments in the sector attribute to the unwavering confidence of investors amidst robust demand, healthy supply pipeline and presence of three successful REITs in the office market. The sector is expected to witness further push in investments from both global and domestic investors along side scaling up of REITable office stock in the coming years. Along with the office sector, investments in residential sector have also intensified during H1 2023, registering a 5X rise YoY. Going forward, investors are likely to increase exposure towards residential and alternative assets, driven by their strong growth prospects, potential for stable returns and diversification benefits”, Vimal Nadar, Senior Director and Head of Research, Colliers India.

Investments in residential assets surged 5X

The residential sector experienced a remarkable five-fold increase in investment inflows during H1 2023, reaching USD433.4 million, primarily driven by domestic investments. Investments in residential assets have seen a rebound led by improved housing demand amidst stable interest rates and healthy affordability levels.

Industrial assets also saw about a two-fold increase in investment inflows led by sustained growth of the sector amidst rising consumption. India’s manufacturing sector continues to grow at rapid pace, owing to strong demand and industrial output. India’s manufacturing PMI was at 31-month high during June 2023 amidst robust demand conditions and improved business sentiments. The sector will continue to receive investment inflows, driven by upturn in domestic consumption, and growing demand from 3PL and manufacturing sector.  

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