The report ‘Investments in Real Estate; Trends in Private Equity Investments in India – 2022’, however, noted that PE investments witnessed a decline of 17% year-on-year from $6.2 billion in 2021.
Due to the rising inflation, higher interest rates and geopolitical unrest, investors turned more cautious in 2022, which resulted in a decline in PE investments in India, the report said.
Office sector continued to remain the favoured asset class constituting 45% of the total PE investments during 2022. The share of warehousing segment stood at 37%, the second highest after office. The share of residential and retail in the total investment pie stood at 12% and 6%, respectively, during 2022, the report said.
Warehousing asset class observed robust growth of 45% YoY with an investment of $ 1.9 billion in 2022 compared to $ 1.3 billion in 2021.
Knight Frank said that going forward, as global headwinds are likely to abate by mid-2023, the capital investment environment is expected to improve.
The total private equity investment in the Indian real estate sector stood at $54.8 billion through 659 deals from 2011 to 2022. Apart from the slump in investments observed in 2020 due to the onset of covid, PE investments in the Indian real estate have remained strong in the last decade, with average investments of $4.6 billion per year from 2011 to 2022.
On the aspect of PE investments across top eight markets in India, Mumbai received the highest investments across sectors, accounting for 41% of the total investments, followed by NCR with 15% and Bengaluru with 14% in 2022.
Shishir Baijal, chairman and managing director, Knight Frank India, “The investment climate in India, moderated in 2022 as investors grew more cautious in response to escalating international tensions and concerns about rising inflation and interest rates. Despite the intensifying global economic recessionary concerns and inflationary pressures, PE investments in Indian real estate assets provided favourable investment avenue for both global and domestic institutional investors."
“The office segment remained the most popular investment category whereas warehousing segment continued to observe rise in interest amongst PE investors supported by the strong demand from manufacturing, e-commerce, and third-party logistics occupiers. Looking forward to 2023, we anticipate that inflation for most of the nations and the pace of rate hikes will moderate. With investors paying attention to the economy, governmental and regulatory framework, business results, and valuations, investments in India are expected to improve," he added.
With regards to the trends witnessed in PE exits from 2011 to 2022, based on public announcement of such exits, the Indian real estate sector observed exits amounting to USD 9.8 bn from 250 deals across office, residential, warehousing and retail segments, generating an average IRR* of 23.2%.
Amongst the leading eight Indian markets, Mumbai, Bengaluru, and the NCR jointly contributed 86% to total exits observed from 2011 to 2022. PE exits in 2022 stood at $822 million, declining 41% year-on-year from the peak exits of $1,392 million observed in 2021. The average deal size of exits grew significantly faster than the exit volumes, indicating higher valuations and growing appetite of investors to absorb higher value deals. Exits via public market sale also observed an appetite for large exits, with an average size of exit reaching $155 million and $164 million in 2021 and 2022, respectively.
