The real estate sector has attracted investments worth $943 million during the quarter led by the office segment and a comeback of retail real estate, showed a JLL India report.
These investments have risen 41% on a sequential basis. However, on a year-on-year basis, investments during the first quarter declined by 25% as the headwinds created by the global geopolitical situation led to a pause in investment decisions.
The March quarter witnessed 10 deals as compared to 16 deals during the year ago period. However, the year has started with renewed vigour as large deals that were on hold are being actively negotiated and are likely to be concluded in the next few quarters.
“The lifting of restrictions led to a pick-up in investment momentum during Q1 2022. This quarter saw a 41% jump in institutional investments over Q4 2021. While domestic capital chased deals in the residential sector, foreign investors were largely seen focusing on commercial assets. Healthy leasing momentum has brought back-office demand with investors entering JVs/ development partnerships. Retail also continued to see good traction with some opportunistic deals in the market” said Lata Pillai, MD & Head, Capital Markets, India, JLL.
According to her, deal flow currently looks very healthy, with $943 million already transacted in the first quarter and with several large deals in the pipeline 2022 investment volumes likely to be at par with 2018 and 2019 (pre covid) levels.
The series of reforms that started in 2014 led to increased capital flows over the years. Out of the total Institutional investment of $62.8 billion from 2006 to March 2022, 58% was received from 2015 onwards.
The key reforms like the introduction of REITs in 2014, the Real Estate (Regulation and Development) Act (RERA) in 2016, the Benami Transactions (Prohibition) Act, GST, and the progressive relaxation of foreign direct investment (FDI) norms over the years has led to improved transparency, accountability, professional management, and development of markets for smoother entry and exit of capital.
The Indian economy and real estate, in particular, have been partially insulated from the global headwind which is reflected in the investment momentum of the March quarter.
Office assets dominated deals with $492 million, translating into a 52% share of the total value transacted during the quarter. Healthy leasing momentum has brought back-office demand with investors entering joint ventures and development partnerships.
One of the key highlights of the quarter is higher investment registered in the retail segment with a share of 27% of total investment during the March quarter. Additionally, investors are actively scouting opportunities and have remained aggressive in deploying capital for warehousing assets. Investments in the residential segment declined sharply as the available options became limited.
Mumbai accounted for 42% share of the total investments during the quarter, followed by Bengaluru at 39%, while Chennai stood third at 14%. The closing of large core asset deals in these cities has skewed the share during the quarter. Mumbai has been leading the investment scenario with core transactions by prominent global funds. The city has seen two major deals in retail and office sector this quarter.
Going forward, JLL India sees the industrial and warehousing segment continue attracting investments at the development stage to maximize yields. The Indian colocation data centre industry is expected to witness higher capital flows to fund the expansion plans of data center operators. Investments in residential real estate are expected to revive due to robust recovery driven by affordable synergy.