PE inflows into office properties highest since 2009 in first quarter

Commercial real estate has emerged as the most preferred segment for private equity investments with Rs 5,630 crore deployed in these assets in the first quarter of the year — this is the highest private equity real estate inflow in office assets since 2009. The investments into office properties constituted 59% of the total investments made across the country during this period, showed a Cushman & Wakefield study.

The asset class also noted a 90% year-on-year growth in inflow with an average deal size of Rs 940 crore, indicating rise in investor’s confidence. Residential assets claimed 37% of total investments atRs 3,620 crore during the first quarter, recording an increase of 59% over the past year with an average deal size of Rs 180 crore.

Institutional investors have been keen to deploy money in leased commercial assets given the lower vacancy levels and the imminent potential of assets to be listed under Real Estate Investment Trusts (REITs).

article pic“The office space is expected to see more interest from investors in the coming years. By the end of the year, we are expected to see at least 2 -3 large portfolio level deals that would be further pushing the total private equity real estate funding in office market. These can be seen as signs of maturity of the market and a commitment from the funds for a long term partnership with developers,” said Anshul Jain, MD, India, Cushman & Wakefield.

Global investors, including Blackstone Group, Singapore’s sovereign fund GIC, Canada Pension Plan Investment Board (CPPIB), Goldman Sachs and Qatar Investment Authority have already been investing in Indian realty assets for the past few years. In addition to this, more funds are eyeing investment and alliance opportunities.

“I see central business districts (CBDs) of key cities such as Mumbai-BKC, Pune and Bengaluru as attractive locations for investment in office assets. These locations have limited supply and with not much fresh supply possible, the increased demand for Grade A offices of BFSI, manufacturing, ecommerce will ensure healthy capital appreciation,” Rubi Arya, executive vice-chairman of Milestone Capital Advisors, which is raising its fourth commercial asset fund to invest in Indian pre-leased grade A office properties in tier-I micro markets.

According to Arya, the market has already seen an upturn in the past two years and the same momentum would continue for the CBD locations. Apart from CBDs, locations which offer an entry price advantage of rentals/capital values will be in focus such as the Thane-Belapur belt, Hebbal in Bangalore or Kharadi in Pune. Overall private equity realty investments declined by a marginal 4.6% during the quarter to Rs 9,590 crore and the largest dip was seen in retail owing to a cautious development in the segment.

Mumbai remained the preferred destination accounting for 49% total of investments at Rs 4,700 crore.