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COVID-19 Impact: Private equity inflow in realty falls 93%, retail space worst-hit

COVID-19 Impact: Private equity inflow in realty falls 93%, retail space worst-hit

COVID-19 Impact: Private equity inflow in realty falls 93%, retail space worst-hit
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By Alisha Sachdev  Jun 11, 2020 7:08:34 AM IST (Updated)

In another blow to Indian real estate, private equity investment in the sector has fallen sharply by 93 percent on a year-on-year basis in the January to May period. In fact, 2020 has so far seen only five PE deals in real estate, dropping to $238 million.

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The writing on the wall is not encouraging either. Investor sentiment is largely expected to remain cautious in the wake of the sharp fall in domestic economic activity due to COVID-19 crisis, particularly the severe hit to the real estate sector, according to property consultancy Knight Frank India's Investments in Real Estate report.
Moreover, "international funds reorienting themselves to attractive opportunities in the developed economies on account of drop in valuations due to recession would cast its shadow on the PE investments in Indian real estate in 2020", the report said.
Out of the five deals which have so far concluded this year, warehousing and office markets account for two deals each and one was in the residential space, the report said.
In 2019, PE investments in Indian real estate fell by 25%, to $6.8 billion, while activity in 2020 is expected to be subdued further.
The retail space has drawn zero PE investment so far this year.
"Due to the pandemic, many tenants in India have invoked the ‘force majeure’ clause in their rental agreements and demanding rent-free periods, other concessions to compensate for the shutdown. Even after easing of lockdown, the fear of contracting COVID-19, restrictions on entry into malls and the low propensity to spend due to job losses and pay cuts may keep retail footfalls low," the report noted.
"As a result, retail occupiers are likely to push for greater revenue share arrangements instead of existing model of minimum guarantee plus revenue share. The year 2020 looks to be a bleak year for the retail segment and may not witness much investor activity over the next 12 months," it added, citing greater risks with investments in real estate assets vis-a-vis office spaces.
“The recall of undeployed capital by sponsors, emergence of attractive opportunities globally, increase in risk premiums, contraction in Indian GDP and COVID-19 related uncertainties would cast its shadow on investor sentiment and we expect the investor activity to be subdued in 2020," Shishir Baijal, Chairman & Managing Director, Knight Frank India, said. Knight Frank expects the warehousing segment will be the first to recover, followed by the office market.
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