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Institutional Investments To Increase By 14.6% In Indian Real Estate In 2021 : Colliers

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Colliers believes that this is an opportune time for funds to enter the market and explore last-mile funding for projects in the residential sector

In their latest outlook report for 2021, Colliers estimates that institutional investments in Indian real estate will grow by 14.6% to INR 396 billion (USD 5.5 billion) from INR346 billion (USD4.8 billion) in 2020. For comparison, 2020 had witnessed a drop of 23% from 2019. Colliers believes that institutional investors continue to be bullish on Indian real estate asset classes such as offices, data centers and warehouses and they are looking to deploy their existing dry powder. 

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“The investment climate in India is very buoyant with global investors’ interest in real assets getting stronger. With global interest rates at historic lows and positive net yields in India, the country has emerged among the preferred destinations for investments in real estate.

Further, the resilience of the Indian market is also evident from continued good housing sales performance across various markets, the large institutional investments in commercial office and industrial parks, and the listing of two REITs in the past six months,” says Piyush Gupta, Managing Director, Capital Markets & Investment Services (India) at Colliers.

Commercial office assets accounted for over 55% of total Indian real estate inflows between 2018 and 2020, showing the higher appetite of investors. However, there is now limited availability of investible office stock. Between 2018 and 2020, an average annual supply of over 35 million square feet (3.3 million square meters) entered the top six Indian cities (Bengaluru, Chennai, Delhi NCR, Hyderabad, Mumbai and Pune), with the majority being snapped up by institutional investors.

Even though a similar level of supply is set to enter the market, some investment firms are increasingly looking towards developing their own greenfield office assets. Investors remain bullish on the long-term prospects even as they target an internal rate of return (IRR) of about 17-18%.

Colliers believes that this is an opportune time for funds to enter the market and explore last-mile funding for projects in the residential sector. The residential sector is slowly witnessing an improvement in sentiment led by decadal-low mortgage rates and rebates offered by developers. We believe that demand in the residential sector ought to turn the corner as the economy rebounds.

According to Siddhart Goel, Senior Director & Head, Research at Colliers International India – “Whilst 2021 may be a year of consolidation and portfolio optimization for occupiers of commercial offices, they will return to growth as confidence in economy increases vis-à-vis the roll-out of COVID-10 vaccines, Meanwhile demand for industrial and logistics parks will only grow due to the inherent domestic demands, adequate government support and the China + 1 strategy that global manufacturers are following. Hence, institutional investors are spoilt for investment choices as they also have data centers and housing projects to chose from.”

Since Data Centers (DC) are capital intensive, Colliers recommend that investors with a long-term horizon scout for greenfield DC assets that yield more attractive returns than brownfield assets.

They estimate that Tier 3 and Tier 4 DC asset class can provide a net yield per annum that is higher than other operating assets, making them attractive for institutional investors. Over the next decade, they also believe that a developer’s strong DC portfolio can also be converted into a REIT, led by a strong appetite for income-yielding assets.

Industrial & Logistics Warehousing sectors outlook

India’s industrial and logistics warehousing sectors are garnering significant interest from institutional investors. Led by robust demand from e-commerce and other consumer-led occupiers, Colliers expect the industrial and logistics sectors demand to be stronger than other asset classes.

During 2021, they expect the increased formation of joint ventures between developers and investment funds to expand and develop industrial parks, and fulfilment centres in Tier I and II locations.

Therefore, demand for core assets located in strategic locations and enjoy easy connectivity to ports, national highways and airports will likely remain strong.

“Warehousing deal activity continued to grow in 2020 supported by strong demand from e-commerce players, consumer electronics, and pharmaceutical sector and 3PL providers. This year too we are seeing healthy growth from 3PLs and local transportation businesses serving the population base in Tier II and Tier III cities. Development activity is expected to continue expanding in Tier I and II cities with several large developers and institutional players announcing new projects and acquiring land to develop logistics parks,”says Shyam Arumugam, Senior Director, Industrial & Logistics Services at Colliers.

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