PE investment in real estate down 17%, inflow up in warehousing sector

Due to rising inflation, higher interest rates and geopolitical unrest, PE investments in the real estate sector declined 17 per cent year on year, from $6.2 billion in 2021 to $5.13 billion in 2022, according to a report by Knight Frank.

The study pointed out that the Indian real estate sector attracted PE investments amounting to $5,134 million ($5.1 billion) through 29 deals across the office, warehousing, residential and retail sectors in 2022.

According to the report, the investment volume in warehousing stood at $1.9 billion in 2022, from $1.3 billion in 2021, up 45 per cent YoY.

The office sector remained the favoured asset class with a 45 per cent share of the total PE investments during 2022. Also, the share of the warehousing segment stood at 37 per cent, the highest after office.

Moreover, during calendar year 2022, the share of residential and retail sectors in the total investment pie stood at 12 per cent and six per cent respectively.

Mumbai received the highest investments across sectors among the top eight markets, with a 41 per cent share, followed by NCR (15 per cent) and Bengaluru (14 per cent) in 2022.

The report also predicted an improvement in the capital investment environment in 2023, with global headwinds likely to abate by mid-2023.

Total private equity investment in Indian real estate stood at $54.8 billion across 659 deals from 2011 to 2022. Apart from the slump observed in 2020 due to the onset of Covid, PE investments in Indian real estate remained strong in the decade, averaging $4.6 billion a year from 2011 to 2022, the report said.

Commercial office assets remained the frontrunner in 2022, with a 45 per cent share of the total PE investments across asset classes. The sector attracted investments worth $2.3 billion in 2022, down 19 per cent YoY.

“Despite the intensifying global economic recessionary concerns and inflationary pressures, PE investments in Indian real estate assets provided a favourable investment avenue for both global and domestic institutional investors,” said Shishir Baijal, chairman & managing director, Knight Frank India.

The office segment remained the most popular investment category, while warehousing continued to observe a rise in interest among PE investors, supported by strong demand from manufacturing, e-commerce, and third-party logistics occupiers, he added.

However, the residential sector accounted for 12 per cent of overall PE investments across asset classes, at $594 million this year. PE investments in retail remained skewed due to two deals in 2022, with investments worth $303 million in 2022.

Investments in the retail sector dipped 63 per cent YoY. With a six per cent share of total PE investments, the retail sector will continue to see capital commitments from investment platforms that remain bullish on its growth prospects, said the report.