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Capital Inflows in Real Estate Jump 42% in First Half of Year

Real Estate

Capital inflows in real estate jumped 42% in the first half of the year (H1 2022) over the second half (H2) 2021 and 4% compared to H1 2021, said report released by CBRE South Asia. On a quarterly basis, the capital inflows in Q2 2022 stood at USD 2 billion, an increase of 47% over Q1 2022. Delhi-NCR, Chennai, and Mumbai dominated the total investment quantum in Q2 2022, with a cumulative share of about 90%, the report said.

The report, ‘India Market Monitor – Q2 2022’, CBRE South Asia, India’s leading real estate consulting firm, highlights the growth, trends, and dynamics across all segments of the real estate sector in India. According to the report, Institutional investors led investment activity with a share of nearly 65%, infusing liquidity primarily in brownfield assets, whereas developers (31%) continued to prioritize greenfield investments. About 70% of the capital inflows were deployed for pure investment or acquisition purposes during Q2 2022, while 30% were committed to development or greenfield projects.

The report also highlighted the office sector’s dominance of investment activity, with a share of about 57% – followed by land/development sites (30%) and the retail sector (10%). Foreign investors accounted for about 67% of the total investment volume in Q2 2022, with investments from Canada garnering a 59% share.

“In 2022, real estate investments are expected to grow further on the back of a strong rebound across asset classes. With total capital inflows reaching USD 3.4 billion in H1 2022, we expect these investments to rise by over 10% versus the 2021 benchmark. Greenfield assets are likely to witness a strong investment uptick. However, we might feel the impact of volatility in the global investments market,” said Anshuman Magazine, Chairman and CEO, India, South-East Asia, Middle East & Africa, CBRE.

“Leading developers have raised over ₹18,700 crore (₹2.4 billion) through the QIP and IPO routes since FY2019 – something we expect to continue in 2022. With improved financials and stronger residential sales in 2022, we also foresee leading developers being in a much better position to negotiate with institutional investors for funds at a comparatively lower cost,” said Gaurav Kumar and Nikhil Bhatia, Managing Directors for Capital Markets and Residential Business, CBRE India.

“Investments in alternate assets, particularly data centres, could gain further traction amidst rising digitalisation and strong policy push towards a digital economy; sustainability and ESG practices would emerge as stronger themes in investment strategies,” they added. The report said that interest in PropTech firms and RE ancillary companies is anticipated to increase amidst the boom in the residential sector and revival in other sectors, while Alternate Investment Funds (AIFs) will remain a major lending source to the commercial real estate sector as NBFCs also plan to set up AIFs to cater to funding requirements.

Investments into REITs are expected to increase owing to portfolio expansion and the launch of new REITs across the office, I&L and retail assets and an upward trajectory is anticipated in the financing cost amidst the monetary tightening measures undertaken by central banks worldwide to tame inflation; margins could see some pressure.

Record leasing activity drove the office sector and positive leasing momentum is expected to gain further strength. The report said that supply addition was recorded at 26.1 million sq. ft in H1 2022, up by 26% Y-o-Y; leasing activity reached 29.5 million sq. ft during the period, a rise of 157% Y-o-Y and supply addition of 16.7 million sq. ft seen in Q2 2022, would be up by around 78% Q-o-Q and 64% Y-o-Y. Leasing activity was recorded at 18.2 million sq. ft, a rise of 220% Y-o-Y and 61% Q-o-Q. Small- to medium-sized deals (up to 50,000 sq. ft.) dominated space take-up with a share of almost 84% in Q2 2022.

Bangalore, Delhi-NCR and Hyderabad dominated space take-up, with a combined share of 67% in Q2 2022 and Hyderabad, Delhi-NCR and Bangalore together accounted for 76% of the supply addition in Q2 2022. The report is of the view that leasing to pick up momentum going forward and space take-up would be attributable to the release of pent-up demand and expansion and consolidation requirements of occupiers. As the recovery momentum remains upbeat, differentiated and high-quality institutional supply in core markets would continue to draw flight-to-quality absorption.

Flexible work patterns have increased in prevalence, but several occupiers are yet to formally define hybrid working and formulate relevant policies and guidelines. This is likely to take place over the next few quarters. Large institutional players would continue with greenfield investments via joint ventures, partnerships, platforms or brownfield investments via REITs, which would boost upcoming supply in the coming years, the report said.

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