Private equity investment in the real estate sector is expected to bounce back to $6 billion, registering a growth of 30 percent year-on-year in 2021, led by improving economic sentiment supported by policy reforms and growth in key emerging sectors, said a report.
The next wave of investments will be driven by growth in warehousing, affordable housing and data centers apart from the commercial office segment which will continue to see steady improvement, said the report by Savills India, a global property consultancy firm.
According to the report titled ‘Beyond The ’20: Private Equity in Indian Real Estate’, the warehousing and logistics segment has been among the most resilient asset classes in the ongoing pandemic. Warehouse leasing is expected to increase by 60 percent in 2021 as compared to 2020, keeping investors riveted and on the lookout for investment opportunities.
Savills Research expects private equity investors to assess an opportunity of around $330 million in the industrial and warehousing segment in 2021. This is approximately 17 percent higher compared to the average annual investments during the period of 2016-2020.
PE investment in real estate in 2020 is expected to contract at $4.6 billion due to a decline in economic activity.
“Policy steadfastness and implementation will hold the key to the revival of investment. In our view, the investors will proceed with caution in the early days, but 2021 is likely to experience a fair amount of PE investment owing to inherent strengths and potential of alternate asset classes in real estate,” said Anurag Mathur, CEO, Savills India.
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From 2000 to 2015 almost 60 percent of PE investment was in the residential segment until the focus of fund managers shifted to ready office assets supported by buoyant demand from 2014 onwards and the segment has attracted approximate 40 percent of investment.
However, the last 2-3 years have seen notable interest in newer asset classes such as student housing, data centers, warehousing and opportunistic assets.
“For the investor community and private equity players, the warehousing segment is becoming an asset class of choice in times ahead. While the leasing activity in the industrial and warehousing segment has declined year-on-year, we expect rentals to see a steady rise as quality supply gets added to the stock,” said Diwakar Rana, Managing Director, Capital Markets, Savills India.
At the other end of the spectrum, retail investments had witnessed a dwindling pattern even in the pre-pandemic period, primarily due to ever-increasing adoption of ecommerce by Indian consumers and lack of incremental supply of premium quality retail malls in major cities, the report said.
New mall completions are reduced by almost 50 percent in 2015-19 from the previous 5-year period.
“The government has been taking steps to create an enabling business environment and boost investments. Both foreign and domestic investors are relooking at some of the untapped areas of investment and have reposed faith across sectors, including real estate,” said Arvind Nandan, Managing Director, Research & Consulting, Savills India.
First Published: IST