In the first half of 2023, India's real estate sector received $2.6 billion in private equity investments, with the office segment accounting for the largest share. However, this represents a 20 percent decline from the previous year as investors adopted a cautious approach. Despite global concerns, a rebound is expected in the second half of 2023, and overall, PE investments are projected to reach $5.6 billion, reflecting a 5.3 percent YoY growth. Mumbai attracted the highest investments, followed by the NCR and Bengaluru.
Knight Frank India, a prominent international property consultancy, revealed in its latest report that the Indian real estate sector attracted $2.6 billion in private equity (PE) investments during the first half of 2023. PE investors' cautious approach resulted in a 20 percent decline in investments across the office, warehousing, and residential segments compared to H1 2022. They adopted a more conservative investment strategy, contributing to the decrease. Despite global concerns influencing investment decisions, the sector's growth moderation has been contained, and a rebound is expected in the second half of 2023. Overall, PE investments in the Indian real estate sector are projected to reach $5.6 billion in 2023, reflecting year-on-year growth of 5.3 percent.
The office sector accounted for the largest share of PE investments, comprising 68 percent of the total, followed by warehousing at 21 percent and residential at 11 percent. Mumbai received the highest share of investments, representing 48 percent, followed by the NCR at 32 percent and Bengaluru at 13 percent. In H1 2023, nearly 75 percent of investments originated from Asian countries, compared with 86 percent from Canada and the US in H1 2022.
The cautiousness of investors and the prevailing geopolitical uncertainties led to tightened lending standards and limited market involvement. The US Federal Reserve and the Central Bank of Canada have implemented multiple interest rate hikes since March 2022, resulting in significantly higher interest rates compared to the pre-pandemic period. Consequently, current interest rates in the US and Canada stand at 5.25 percent and 4.75 percent, respectively, nearly double the previous levels. The increased capital costs and concerns of an impending recession have dampened investment activity in these countries. During H1 2023, more than 80 percent of total investments were directed towards ready assets, indicating a risk-averse approach by investors.
The office sector received $1.8 billion in investments during H1 2023, maintaining its dominance with a 68 percent share of total investments. Investable-grade office assets supported this trend. PE investments in the office sector witnessed a YoY increase of 24 percent in H1 2023, primarily driven by a significant deal worth $1.4 billion between GIC and Brookfield India Real Estate Trust REIT. Of the investments in H1 2023, approximately 80 percent were allocated to ready assets, while 20 percent were dedicated to new and under-construction developments, reflecting investor aversion to risks. Mumbai, NCR, and Bengaluru emerged as the top investment destinations for office investments in H1 2023.
Knight Frank (India) Private Limited, established in 1995, is an unlisted company based in Mumbai, Maharashtra. As a private limited company, it operates in the real estate sector, offering services such as renting, buying, selling, and appraising properties. The company has an authorized share capital of INR 4.00 crore and a total paid-up capital of INR 3.22 crore.
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