PE investment in commercial real estate shimmers, good news for government

Source :Sify
Author :Finance Desk
Last Updated: Thu, Oct 15th, 2020, 15:19:51hrs
Real Estate

Mumbai: The real estate industry in India could be sitting atop a gold-mine worth Rs 1.2 trillion. And, that is just in the commercial property segment.

Speak of private equity investments or PE investment for the year so far, the industry recorded investments worth $ 2,308 million, according to Knight Frank India.

The agency in its latest research report – 'Investments in Real Estate - Trends in PE Investments – Q3 2020' said that equity investments worth $2,308 million was via 11 deals during the year (Jan-Sept'20). The office segment attracted $1,871 million with an 81 percent share. This was followed by warehousing at 10% and residential at 9%.

Here is a snapshot of the investment:

Real Estate Asset Class

PE Investments in debt and equity ($ mn)

Number of Private Equity Deals

 

2019

YTD 2019

YTD2020

2019

YTD 2019

YTD 2020

Office

3,259

2,725

1,871

18

14

4

Retail

922

397

0

6

3

0

Warehousing

1,894

1,537

221

7

6

4

Residential

717

659

216

18

15

3

Grand Total

6,792

5,318

2,308

49

38

11

Knight Frank's report suggests that PSUs keen on raising capital may adopt the REIT approach. Shishir Baijal, CMD at Knight Frank adds, "The first two REITs of India have been immensely successful and garnered strong investor interest. The potential of the office space market in India has been fundamentally strong given the generic pace of growth of the economy and the demand. Thus, in the mid-term to long term basis investment in the asset class is expected to be positive. This may therefore be a good opportunity for Government to monetise the rent yielding office assets of PSUs."

Top 5 highlights from the report are as follows:

1. Top 45 companies hold commercial properties viable for Real Estate Investment Trust (REIT) at a potential of over Rs 1.2 trillion. This is based on assessment of 45 listed PSUs - Maharatnas, Navratnas, mini-ratnas, PSBs and other PSUs.

2. Quantum of REIT potential can be significantly higher than Rs 1.2 trillion if office buildings of the 45 PSUs are valued on market value basis and also with the addition of office assets of other listed PSUs along with the office assets of the unlisted PSUs which are under the direct ownership of the central government.

3. Segment of Indian Office market, since 2011, garnered $ 15.4 billion of equity investments. Around Around 18.1 mn sq ft of office-segment was transacted in YTD 2020.

4. Mumbai, Delhi and Hyderabad occupy the lead positions in office-space category in last ten years - investment is estimated at $ 5,015 million, $ 2,803 mn and $ 2,010 mn respectively.

5. In 2020, there were no investment deals in retail space due to the lockdown that forced malls to halt operations. Investors and mall owners are financially it owing to a partial/full rent waiver for the lockdown period. "High levels of uncertainty kept investors away from retail assets," said the report.

Baijal, adds, "Private equity investors have taken advantage of this period of economic slowdown to scout for Grade A assets with strong growth trends for investments. As a result of which, assets in office segment saw positive investment activities. The average deal size for office investments was also seen to be remarkably higher in YTD 2020 as compared to full year 2019. Globally, we see investors assessing the resilience and growth momentum of economies to make large scale investments. India's economy, though impacted, is expected to see an accelerated recovery in the next few months."

Rajani Sinha, Chief Economist & National Director – Research, Knight Frank India said, "We have witnessed healthy investor interest in the office segment despite the slowdown this year. While the investors are currently cautious due to the disruptions in the real estate sector and the sharp economic slowdown across global economies, we feel that the investor, interest in Indian real estate will remain strong in the long term."

The Knight Frank report on equity investments specifically in commercial real estate is almost in line with two other reports that have indicated an uptick in festive demand in residential sector.