Institutional real estate investment in India up 17% YoY in Q3: JLL
USD 721 million of institutional investments recorded in the third quarter
- Residential market leads the total investment with 29%
- Mumbai leads the investment pie at 39%
Institutional investment[1]
posted 17% Year-on-Year (YoY) growth during
Q3 2021 (July-September) as investors continued to conduct deals
despite the resurgence led uncertainty and disruptions, according to
JLL’s ‘Capital Markets Update Q3 2021’ released today. However,
as compared to Q2 2021, volumes registered during the
quarter are lower by 47% on a sequential basis. The recovery in
investments during the first nine months of 2021 has been better than
the pandemic year as total deals of USD 2,977 million were recorded as
against USD 1,534 million during the previous period.
The
muted growth in transactions is likely due to delays in the deal
process influenced by travel restrictions. However, some funds with long
term horizons
have upped their risk appetite by investing in opportunistic asset
portfolios. Listed REITs continued to raise low-cost debt and use the
proceeds to acquire assets at attractive valuations.
Across
India, investors are expected to take a cue from improvement in
operational metrics of various asset classes as commercial office space
witnessed
8% YoY growth in net absorption at 5.85 million sq. ft in Q3 2021,
while residential sales grew by 65% on a sequential quarter basis
registering sales of more than 32,000 units.
17% Y-o-Y growth in investments during Q3 2021
“Close
analysts of investments during Q3 2021 reveals that it has been more
balanced with the residential sector accounting for 29% of the total
investments,
followed by alternative sector - Data Centre (DC) accounting for 22%
share. The mixed-use project of residential and commercial accounted for
19% of the total investments. Investments during the quarter have been
broad-based as compared to investments in only
two sectors during Q3 2020,” said Lata Pillai, Managing Director and Head, Capital Markets, India, JLL
“The
Reserve Bank of India (RBI) - India's central bank has kept the policy
rates unchanged despite inflation concerns as sustained nurturing of
economic
growth remains a priority. It has maintained its GDP growth forecast at
9.5% for the financial year 2021-22, expecting strong economic growth
in coming quarters,”
she added
The
residential sector has seen a robust sales growth of 47% during the
first nine months of 2021 over the same period of 2020. The third
quarter proved
that pandemic resurgence had a limited impact as sales grew by 65% on a
sequential basis.
“The
cautious unlocking of the economy, increased pace of vaccination and
affordability synergy led to continuous growth in sales of residential
units.
Investment flows in the residential segment were impacted due to
increased risk perception, shadow banking crisis and structural changes
in the sector. The third quarter witnessed increased debt funding for
projects that have received good home buyer responses
due to the developer track record. Investors are likely to infuse more
capital in the residential segment towards projects in the last stages
of completion,” said
Dr Samantak Das, Chief Economist and Head of Research & REIS (India), JLL
“The
rating agency, Moody’s has upgraded the sovereign rating outlook to
“Stable” from “Negative” indicating that downside risks are receding.
This positive outlook is likely to get reflected in the real estate
sector investments during the last quarter of 2021. The large dry
powder, low-interest rates, and continued monetary stimulus are expected
to drive broad-based investment growth,”
he added.
In
alternative assets classes, - Data Centres have been attracting high
interest as the industry is expected to double its capacity from 499MW
as of H1
2021 to 1007 MW by end of 2023. The pandemic has accelerated the demand
for third party DC industry. Investors and DC players have increased
their commitments during the last 6 months to set up new data centres
indicating strong growth potential. Investment
plans to the tune of USD 3 billion highlight the growth potential of
this industry.
Residential and DC industry dominate deal volumes
USD million |
Q3 2020 |
Q3 2021 |
% share |
Residential |
211 |
211 |
29% |
Alternatives |
- |
161 |
22% |
Mixed-use |
- |
137 |
19% |
Office |
405 |
100 |
14% |
Warehousing |
- |
94 |
13% |
Land |
- |
18 |
2% |
Grand Total |
616 |
721 |
100% |
Source: Capital markets, JLL
Mumbai, NCR-Delhi and Bengaluru attract 77% investments during Q3 2021
Mumbai
with increased investments in the DC industry and capital flow in
select residential projects led the investment pie with a 39% share.
Bengaluru
recorded entity-level investment in a mixed-use (residential and
commercial) project leading to a 19% share while NCR-Delhi with
transactions in the residential and warehousing segment also had a
similar share. Office space transactions have been muted due
to a likely delay in the due diligence process and investors gauging
the unfolding of work from the office scenario.
Mumbai leads deal table with 39% share
|
Q3 2021 |
Q3 2021 |
% share |
Mumbai |
- |
279 |
39% |
Bengaluru |
- |
137 |
19% |
NCR-Delhi |
76 |
136 |
19% |
Hyderabad |
- |
106 |
15% |
Chennai |
235 |
63 |
9% |
Others |
305 |
- |
- |
Grand Total |
616 |
721 |
100% |
Source: Capital markets, JLL
Outlook – economic tailwinds to spur investments in last quarter of 2021
Progress in vaccination and continued fiscal stimulus are important tools for restoring normalcy and ensure economic growth lost during the pandemic period.
Few investment themes expected to continue
The listing of future REITs by institutional investors is expected to drive portfolio creation across classes, while existing listed REITs would expand their existing portfolio through inorganic growth. Institutional funds with diversified portfolios across assets and geographies are likely to list sooner. Investors are likely to focus on assets stable rental growth to ensure visibility of income. Though office assets will continue to attract maximum investments, defensive assets like logistics and data centres would provide opportunities and are expected to gain traction. The Industrial and warehousing space sector will continue to attract investors at the development stage to maximize yields as the sector is expected to benefit from e-commerce and third-party logistics (3PL). As the Indian colocation data centre industry size is expected to double by 2023, it is expected to witness higher capital flows to fund the expansion plans of DC operators.
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