Parul
Knight Frank India, an international property consultancy in its latest report – Trends in Private Equity Investment in India – H1 2023 cited that the real estate sector in India received $2.6 billion in private equity (PE) investments across office, warehousing and residential sectors in the first half of 2023. This is down 20% from H1 2022 as PE investors adopted a measured approach in H1 2023, resulting in a conservative shift in investment strategies. Despite prevailing global concerns influencing investments, the moderation in growth has been limited, and a rebound is anticipated in the second half of 2023. Overall, PE investments in the Indian real estate sector is estimated to touch $5.6 bn in 2023, a 5.3% YoY growth.
The office sector at 68% accounted for the largest share of all PE investments, followed by warehousing at 21% and residential at 11% share. Mumbai received highest investments accounting for 48%, NCR stood second at 32% and Bengaluru at 13%. Nearly 75% of investments came from Asian countries in H1 2023, in contrast to 86% investment received from Canada & US in H1 2022.
The office sector leads the pack in the market, warehousing in a strong second position
The tightened lending standards and geopolitical uncertainty on a global scale kept investors cautious and limited their involvement in the market. Since March 2022, the US Federal Reserve has implemented interest rate hikes on ten occasions, resulting in a 2.25% point increase in rates, while the Central Bank of Canada has implemented nine such rate hikes, leading to a 2.75% point increase in the overnight rate. As a result, current interest rates in the US and Canada stand at 5.25% and 4.75% respectively, almost double compared to the pre-pandemic period. The impact of increased capital cost, and growing concerns of recession has subdued investment activity from these countries. In the first half of 2023, over 80% of the total investments were directed towards ready assets, clearly indicating investors’ cautious stance.
Segment wise break up of PE investments in H1 2023
| Real Estate Assets | PE Investments (in $ mn) | % of Funds received | Number of PE deals |
| Office | 1750 | 68% | 4 |
| Retail | – | – | – |
| Warehousing | 555 | 21% | 5 |
| Residential | 277 | 11% | 5 |
| Total | 2582 | 100% | 14 |
Trends in PE investments in Office assets: The Most Favoured Segment
The office sector received $1.8 billion in investments during H1 2023. The trend of office assets maintaining their lead continued in H1 2023, accounting for a 68% share of total investments. The resilience of investable grade office assets supported this dominance. PE investments in the office sector experienced a YoY increase of 24% in H1 2023. This growth was largely driven by a substantial deal worth $1.4 bn between GIC and Brookfield India Real Estate Trust REIT. Around 80% of the investments in H1 2023 were in ready assets, while 20% were allocated to new and under-construction developments, reflecting investor aversion to risks. Mumbai, NCR and Bengaluru emerged as leading investment destinations for office investments in H1 2023.
Space transacted by PE investors in Office space segment in the last decade
| Year | Total area of the assets transacted (mn sq ft) |
| 2011 | 5.8 |
| 2012 | 18.9 |
| 2013 | 11.6 |
| 2014 | 5.6 |
| 2015 | 5.8 |
| 2016 | 13.5 |
| 2017 | 56.7 |
| 2018 | 36.1 |
| 2019 | 33.7 |
| 2020 | 21.8 |
| 2021 | 35.4 |
| 2022 | 56.1 |
| H1 2023 | 7.8 |
| Grand Total | 308.8 |
Source: Knight Frank Research
Trends in PE investments in Residential
Residential sector attracted $277 million in investments during H1 2023. All PE investments in the residential sector were focused on under-construction projects, aiming for investments at early stage for better returns. Foreign PE players accounted for 82% of the private equity investments in the residential sector. NCR and Bengaluru emerged as the leading investment destinations, driven by development stage transactions involving prominent global players.
Residential sector received investments worth USD 277 mn in H1 2023
Source: Knight Frank Research, Venture Intelligence
*Investments considered till 25th June 2023
| Investor interest in retail moving beyond metros |
Retail sector did not witness any deal in H1 2023. However, the listing of a retail REIT will likely lead to increased interest among investors.
The investor interest in the retail sector has expanded beyond major metros during the last decade. Apart from the metros or the key 8 markets, the traction is also seen in markets like Chandigarh attracting investment of $267 mn, Nagpur and Amritsar $100 mn each, Indore $61 mn, and Bhubaneshwar $46 million.
Investment platforms optimistic about growth prospects of the retail sector are expected to continue making capital commitments in the sector.
