India’s office sector see institutional investments worth $1.8 B in Apr-Jun: Report
Latest Updates: India's office real estate sector witnessed a historic surge in institutional investments during the second quarter of 2023, reaching a record-breaking $1.8 billion, according to data from Colliers. This marked the highest investment seen in the past 10 quarters. Furthermore, the year-on-year increase for the first half of 2023 amounted to 2.5 times, totaling an impressive $2.7 billion. The office sector dominated investment inflows, accounting for a significant 74% share, surpassing the residential sector, which attracted only 12%.
The overall institutional investment inflows into the Indian real estate market experienced a substantial year-on-year growth of 43%, accumulating a total of $3.7 billion in the first half of 2023. These remarkable figures showcase the strength of the domestic economy and the robust fundamentals of real estate asset classes, particularly office and residential properties. Institutional investors have demonstrated keen interest in the office sector due to increased opportunities, resilient demand, and promising growth prospects over the next 2-3 years.
One of the key factors contributing to the surge in foreign investments in the Indian office sector is the sturdy demand for Grade A office space, coupled with an impressive supply pipeline. Additionally, improved transparency and the availability of exit avenues through Real Estate Investment Trusts (REITs) have further bolstered foreign investments in the sector over the past five years.
Foreign investments in office assets during the first half of 2023 reached a substantial amount of $1.9 billion, accounting for 71% of the total investments in the sector. Global investors continue to view the Indian office sector favorably, displaying a heightened appetite for high-quality income-yielding Grade A office assets. Although many prominent office projects are already funded by top institutional investors, the healthy supply pipeline of over 150 million square feet across the top six cities presents new investment opportunities in the next three years. To tap into these emerging office projects, investors are forming large Joint Venture (JV) platforms to deploy funds.
Piyush Gupta, Managing Director of Capital Markets & Investment Services at Colliers India, noted that the office sector is undergoing a global recalibration, leading investors to take more time in making investment decisions. Furthermore, factors such as interest rates and inflationary pressures have temporarily kept investors in a wait-and-watch mode as they reassess global macro risks. However, despite these considerations, the office sector remains attractive due to its long-term growth potential.
REITs have had a major impact on transforming India's office market into a more corporate structure, and regulatory reforms have attracted more investments to the sector. Currently, only 11% of the top six cities' Grade A office stock is listed as REITs, suggesting a substantial untapped potential of 57%. Given the current investment momentum, there is a high probability of unlocking this growth and bridging the gap with other countries in the Asia-Pacific region.
Alongside the office sector, investments in the residential sector have also intensified, experiencing a remarkable five-fold increase in investment inflows during H1 2023, amounting to $433.4 million. This growth was primarily driven by domestic investments. Additionally, the industrial assets saw a two-fold increase in investment inflows, reflecting the sector's sustained growth amidst rising consumption. The manufacturing sector in India is rapidly expanding due to strong demand and industrial output, further fueling investment inflows driven by domestic consumption and the growing demand from third-party logistics (3PL) and the manufacturing sector.
Vimal Nadar, Senior Director and Head of Research at Colliers India, expects further investment influx from both global and domestic investors in the coming years. He also anticipates an increased focus on residential and alternative assets, driven by their strong growth prospects, potential for stable returns, and diversification benefits.