Real Estate: Investment Inflows Jump 37% YoY in Q1 2023; Office Continues To Lead the Rally

Institutional investments in real estate remained strong during the first quarter of 2023 (January-March 2023) at $1.7 billion, led by the office sector, lending an optimistic outlook for the year. The office sector continued to drive the investment inflows accounting for 55 per cent of the total inflows during the quarter, followed by the residential sector at a 22 per cent share, according to a report by Colliers.

“Investment inflows in the office sector rose by 41 per cent YoY at $0.9 billion, led by select large deals. Owing to the strong growth prospects in the office sector, key institutional investors are entering into strategic partnerships to strengthen their presence and expand their office portfolio in India,” Colliers said in a statement.

It added that investments from domestic investors rose 4X YoY during the quarter. Domestic investors remained committed towards residential assets during the quarter, despite higher lending rates. On the other hand, global investors remained inclined towards office and industrial assets, and dominated the total investment inflows at a 76 per cent share.

Larger markets such as Delhi-NCR and Bengaluru attracted a third of the total investments during the quarter, led by increased activity in these markets. However, a majority of the inflows (63 per cent) were through multi-city deals.

Piyush Gupta, managing director (capital markets & investment services) at Colliers India, said, “The Indian real estate investment cycle is now transitioning into a phase to witness secondary market transactions and may see more institutional owners partially or fully divesting portfolios. In the coming quarters, we shall see some large quality assets traded in office and select logistics assets. The preference of India in developing Asia Pacific markets is getting stronger.”

Vimal Nadar, senior director and head (research) at Colliers India, said, “Global institutional investors’ appetite for office assets remains strong owing to India’s growing talent pool, digitisation, enhanced transparency in deal structures and stable returns. Foreign investments accounted for about 93 per cent of the total investments in office assets during Q1 2023. Led by increased opportunity, we are likely to see more collaborations to develop platforms for developing high-quality Grade-A office assets.”

Investments in Industrial Assets Surge

According to Colliers, investment inflows in industrial assets also witnessed a 20 per cent YoY rise during Q1 2023 at $216.3 million, led by foreign investments. The industrial sector is witnessing consistent growth owing to increased opportunities in manufacturing, favourable government policies and growth in e-commerce, leading to a significant amount of investible assets in the region.

Along with core assets, investors also continued to allocate funds towards alternative assets and infused $158.2 million, 4X more than same period last year. Significant inflows in the alternatives wash led by a large deal in the hospitality sector. This portfolio diversification has enhanced the ability of many funds to grow their portfolios and remain resilient in these uncertain market conditions.

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