A new market outlook from professional services and investment manager Colliers is forecasting global institutional investment in Indian real estate to snap back to INR 396 billion ($5.5 billion) this year, marking an increase of 14.6 percent from INR 346 billion ($4.8 billion) in 2020. This rapid, expected recovery comes after institutional investment in Indian property dropped 23 percent in 2020 due to the effects of covid-19.
Based on its own research, Colliers says investors are upbeat on Indian real estate subsectors such as offices, data centers and warehouses, and looking for opportunities to deploy existing dry powder. Additionally, India has witnessed two new REIT listings in the past year–Mindspace Business Parks in August 2020, and Brookfield India REIT earlier this month–and given the strong investor reception to those listings, Colliers anticipates another 1-2 REIT listings in India during the later half of this year.
While commercial office assets accounted for just over half (55 percent) of Indian real estate inflows between 2018 and 2020, India’s available office stock today is comparatively limited. 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 bought by institutional investors.
Logistics, logistics, logistics
With robust demand coming from e-commerce and other consumer-led occupiers, Colliers expects demand for India’s industrial and logistics sectors demand to outpace other asset classes. Interest has already materialized from institutional investors, with firms including Blackstone, Logos, GIC, and CapitaLand having formed joint ventures with local developers to set up and buy industrial parks and fulfillment centers in Tier I and II locations. Colliers expects demand for core assets located in strategic locations that offer easy connectivity to ports, national highways and airports to 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 [third party logistics] providers,” said Syam Arumugam, Senior Director of Industrial & Logistics Services at Colliers. “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.”
Some of this interest is being driven by the introduction of a new Goods and Services Tax (GST) regime, a new national logistics policy, along with official classification of the sector as infrastructure, and further development multimodal infrastructure. In 2020, Singapore sovereign wealth fund GIC formed a $750 million joint venture with ESR Cayman to develop and buy industrial and logistics assets in India. This follows other major investments in the sector the past two years from foreign institutions including Abu Dhabi Investment Authority (ADIA), Canada Pension Plan Investment Board (CPPIB), Ivanhoe Cambridge, Ascendas, and Blackstone.
And yes, data centers
On a similar note, Colliers expects data center demand to remain buoyant. India has about 1.2 megawatt (MW) per user of co-location data center (DC) capacity, compared to Europe’s 19.1 MW per user capacity, representing a potentially attractive opportunity for data center operators.
Demand has been supported through government incentive programs, including a centralized fund of INR 800 million ($1.1 billion) earmarked for the 2020-2021 fiscal year to set up data centers and IT parks nationwide. India’s Personal Data Protection Bill, passed in 2019, also requires that individual personal data is stored locally, a measure that has incentivized the building of local data centers in India.
Colliers expects two private-equity deals in data centers to close in 2021, in addition to several other, large investments in new data centers from Indian consortia.
But also, housing
Colliers report finds that 2021 may be an opportune moment for investment funds to enter India’s residential property market, especially for last-mile project funding, noting that non-banking financial companies (NBFCs) are either currently withdrawing from the housing sector or not deploying more capital.
“The residential sector is slowly witnessing an improvement in sentiment led by decade-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,” they write.
