Private equity inflows in real estate at Rs 112 billion; office sector leads investments

Private equity fund inflows in real estate increased 9 percent year-on-year in the first three quarters of 2018 and stood at Rs 378.15 billion. The investment volume in the third quarter stood at Rs 112.12 billion, a report by Cushman & Wakefield has said.

Hyderabad attracted the maximum attention from institutional investors with the city recording almost 60 percent of the total investment inflows during the quarter. Mumbai was second with a 22 percent share of the quarterly investment flows.

Some marquee transactions observed in Hyderabad were Xander Investment Management’s commitment of Rs 25.5 billion in Phoenix Group for development and acquisition of an office project in Gachibowli, Shapoorji Pallonji Group & Allianz joint venture acquiring the 2.3 msf office park (WaveRock) and forward purchase acquisition of office buildings in aVance Business Hub 2 by Ascendas India Trust.

The commercial office asset class accounted for nearly two thirds of the investment volume during the quarter at Rs 71.4 billion. This is a marker for the continued strong institutional interest in the commercial sector for core and core plus assets as well as opportunistic investments in brownfield and greenfield projects, the report said.
The upcoming REIT listing will serve as a benchmark for similar listings and create lividity for smaller investors to participate in the commercial office segment. The upcoming quarter is also likely to see some key transactions with investors like Blackstone, GIC, Mapletree Investments and CPPIB eyeing marquee office assets in Mumbai, Chennai and Hyderabad.

Office sector investments during year-to-date (YTD) 2018 have surpassed (by 1.3 times) the volumes for the corresponding period of 2017, and the large pipeline of transactions is expected to create a new benchmark by end of 2018. will lead to the sector scaling new peaks by the end of 2018.

The residential sector has also seen higher inflows largely through domestic and NBFC route, but the current concerns on the asset quality and debt levels of NBFCs are likely to impact future disbursals amid the IL&FS default and concerns regarding developer credit defaults impacting NBFCs ability to raise from funds from banks, says the report.

Retail has retained its strong showing in investment flows, but is still slightly lower in YTD 2018 compared to the corresponding period in 2017. However, Tier -II and III cities and opportunistic deals in larger cities are still being actively considered by institutional players.
Hospitality is finding favour again with refinancing as well as picking up of equity stakes in key hotel assets across the country. Increasing occupancy in both business as well tourist locations and attractive valuations for assets are attracting institutional players to this segment again. The focus remains towards operational assets largely.