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Global institutional investors’ interest in Indian office assets remains high due to several factors including India’s growing talent pool, increase in digitisation, improved transparency and stable returns. Sanke PrasadCMD Colliers India, he spoke Sobia Khan ET on domestic investors likely to remain cautious and diversify their portfolios during the first half of 2023, Indian markets witness strong growth even as rapid revaluations take place in the APAC region Better valuations and institutional investors are forging a strategic partnership. To expand its office portfolio in India given the strong growth potential of the region, Ansh…What are the latest trends in investing and leasing in India? How different is it from the APAC markets?
Investment activity in global markets in the first quarter of 2023 remained subdued compared to previous years. In the APAC region, rising interest rates and inflation continued to impact real estate markets. However, investment sentiment in India remains promising due to continued investor interest in core assets. In the first quarter of 2023, institutional investment in the Indian real estate market remained strong, totaling US$ 1.7 billion, with the office sector leading the way and providing an optimistic outlook for the year ahead. During Q1 2023, investment in alternative assets increased by 4 times as compared to the previous year period. Despite these challenges, the real estate sector is expected to remain resilient in 2023, especially in the second half of the year. In a scenario where outliers do not have a prolonged and significant impact, the office sector is expected to see 35-38 million sq ft of office leasing during 2023.How do you see the investment scenario in India as compared to global markets? How is it placed among APAC countries?
Global institutional investors’ interest in Indian office properties remains high due to several factors including India’s growing talent pool, increase in digitisation, improved transparency and stable returns. While domestic investors are likely to remain cautious during the first half of 2023, they may be looking at diversifying their portfolios as India is expected to witness strong growth potential. Given the strong growth potential of the region, leading institutional investors are forming strategic partnerships to expand their office portfolio in India. In the APAC region, markets are undergoing rapid revaluation leading to better valuations. It is expected to attract more investments in 2023. Gateway markets with safe haven positions and deep levels of private capital are likely to flourish in this environment. Businesses are realizing plans and investors are sharpening strategies to pick the right markets and assets for strong returns this year.Against the backdrop of the ongoing slowdown, what impact do you see in the Indian market? Do we expect India to get more work than other global markets?
During 2022, the real estate sector performed well and witnessed high traction, despite the ongoing economic concerns. Looking ahead to 2023, the year has started with some caution, with a global recession and recessionary pressures in some sectors. While some sectors like office are witnessing slow demand, there are ample opportunities in sectors like industrial, alternative assets etc. which are likely to attract the interest of the stakeholders.
During 2023, we expect further expansion of Global Competence Centers in the country. According to NASSCOM, GCC continues to grow at a steady rate of 11% till Q4 2022. Led by its growing talent pool, service delivery excellence, innovation and affordable resources, the country’s GCC market is expected to grow at a CAGR of 6.5% till 2025, providing numerous opportunities for investors in the space.
What kind of funds is India looking at and why? What kind of opportunities does the country provide?
India is attracting various types of funds from global investors as it offers opportunities in core as well as emerging assets. Apart from income-generating office assets, asset classes such as residential, industrial storage and data centers have shown promise. These asset classes saw some huge transactions in 2022 and are likely to see some more traction over the next few years. Performance loans, special situations, portfolio acquisitions, asset reconstruction and related structures are on the rise and are likely to attract more investment. Leading global investors are increasingly partnering with domestic firms to set up investment platforms.
Foreign investors looking to diversify their portfolio have invested in alternative asset classes such as data centres, life sciences and co-living etc. Additionally, there is a high demand for luxury housing in India, making it another attractive investment opportunity, especially for NRIs and HNIs.
How do you think the Indian property market fares in terms of pricing, valuations and returns from the perspective of global investors looking to buy property here?
From the perspective of global investors, the Indian property market is currently offering attractive pricing, valuations and returns. Indian cities, in particular, offer higher returns than other APAC cities at a relatively lower price point. According to Colliers’ APAC Cap Rates Q4 2022 report, Bengaluru and Mumbai are ranked second and third respectively in terms of commercial yields in APAC. Bengaluru leads in office yields at 8.25% – 8.75% and retail yields at 9.5% – 10.75%, while Mumbai leads in industrial assets with 8.0% – 9.5% yields. Moreover, with the central bank keeping the repo rate on hold through April 2023, bond yields are likely to remain range bound. Furthermore, with the expected reversal in the interest cycle over the next few quarters, the yield spread between bonds and real estate is likely to widen, making real estate an attractive proposition for investors.
Many funds are now maturing and we are seeing secondary exits. Are you seeing an influx of new sets of investors? If yes, please explain.
Considering the average fund life of 7-8 years, we are currently witnessing a lot of secondary exits. However, a lot of new investors are coming to India looking to invest in income generating properties. Some of the notable investors entering India are Cadillac Fairview, Panotomy, Partners Group, Taurus Holdings etc.
REITs and fractional ownership are increasingly attracting the attention of small investors in India who are showing a growing appetite for investing in real estate. The consistent returns and success of REITs in office market assets has laid a strong foundation for other asset classes as well. Therefore, we are likely to see more retail and industrial REITS in the next few months.
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