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The interest of global institutional investors in Indian office assets remains high due to several factors, including India’s expanding talent pool, increased digitization, improved transparency, and stable returns, said Sankey Prasad, CMD Colliers India. He spoke to Sobia Khan of ET on how domestic investors are likely to remain cautious during the first half of 2023 and look to diversify their portfolios, Indian market is to see strong growth even as the APAC region undergoes a quick repricing leading to better valuations and institutional investors forming strategic partnerships to expand their office portfolios in India, given the sector’s strong growth prospects, Excerpts…What are the latest trends in terms of investment and leasing in India. How different is it from APAC markets?
Investment activity in the global markets remained subdued relative to previous years in the first quarter of 2023. Across the APAC region, rising interest rates and inflation continue to impact real estate markets. However, the India investment sentiment remains promising, led by investors’ continued interest in core assets. In Q1 2023, institutional investments in the Indian real estate market remained strong, totalling USD 1.7 billion, with the office sector leading the way and providing an optimistic outlook for the year ahead. During Q1 2023, investments in alternative assets rose 4X comparlast year’s period. Despite these challenges, the real estate sector is expected to remain resilient in 2023, particularly in the latter half of the year. In a scenario wherein the external factors do not have a prolonged & a significant impact, office sector is likely to witness 35-38 mn sq ft of office leasing during 2023.How do you view the investment scenario in India as compared to global markets? How is it placed amongst APAC countries?
The interest of global institutional investors in Indian office assets remains high due to several factors, including India’s expanding talent pool, increased digitization, improved transparency, and stable returns. Though domestic investors are likely to remain cautious during the first half of 2023, they look for diversifying their portfolios, as India is likely to see strong growth prospects. Key institutional investors are forming strategic partnerships to expand their office portfolios in India, given the sector’s strong growth prospects. Across the APAC region, markets are undergoing a quick repricing leading to better valuations. This is expected to attract more investments in 2023. Gateway markets with safe-haven status and deep levels of private capital are likely to thrive in this environment. Businesses are realigning plans and investors are sharpening strategies to pick the right markets and assets for strong returns this year.In the backdrop of the ongoing recession, what impact do you see in the Indian market? Do we expect India to get more work from other global markets?
During 2022, despite the ongoing economic concerns, the real estate sector performed well and witnessed higher traction. Peering into 2023, the year has started on some caution with pressures from a looming global recession and slowdown in certain sectors. While some sectors such as office are seeing slowing demand, there are ample opportunities in sectors such as industrial, alternate assets, etc. that are likely to grab stakeholders’ interest.
During 2023, we expect global capability centres to further expand in the country. According to NASSCOM, as of Q4 2022, GCCs, continues to grow at a steady rate of 11%. Led by its growing talent pool, service delivery excellence, innovation and cost-efficient resources, the country’s GCCs market is expected to grow at CAGR of 6.5% by 2025, providing multiple opportunities for investors in the space.
What kind of funds are looking at India and why? What kind of opportunities does the country offer?
India has been attracting various kinds of funds from global investors due to the opportunities it offers in core as well as emerging assets. Apart from the income yielding office assets, asset classes such as residential, industrial warehousing, and data centres have been promising. 2022 witnessed some large transactions in these asset classes and is likely to see some more traction in the next couple of years. Performance credit, special situations, portfolio acquisitions, asset reconstruction and related structures have been growing and are likely to attract more investments. Key global investors are increasingly partnering with domestic firms to set up investment platforms.
Foreign investors looking to diversify portfolios have ventured into Alternative Asset classes such as Data Centers, life sciences and Co-Living etc. There has been a 12x rise in data center investments in 2020-22 compared to the 2017-19 period, indicating the high potential of this industry in India. Additionally, luxury housing has a high demand, making it another attractive investment opportunity, especially for NRIs & HNIs.
How do you think the Indian property market is placed concerning pricing, valuation, and yields from the perspective of global investors looking at buying properties here?
From the perspective of global investors, the Indian property market is currently offering attractive pricing, valuations, and yields. Indian cities, in particular, offer higher yields in comparison to other APAC cities at a relatively lower pricing point. According to Colliers’ APAC cap rates Q4 2022 report, Bengaluru and Mumbai occupy the 2nd and 3rd positions, respectively, in terms of commercial yield across 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 at 8.0% – 9.5% yields. Further, with the Central bank maintaining the repo rate in April 2023, the bond yield is likely to remain range bound. Further, with 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 witnessing the influx of new sets of investors? If yes, please explain.
Considering average fund life of 7-8 years, we are currently witnessing a lot of secondary exits. However, a lot of new investors are venturing India looking to invest in income yielding assets. Few notable investors entering India are Cadillac Fairview, Panatomi, Partners Group, Taurus Holdings etc.
REITs and Fractional ownership is rapidly gaining the attention of smaller investors in India who are showing increased appetite for investments in real estate. Consistent returns and success of REITs in office market assets has laid a strong foundation for other asset classes as well. Hence, we are likely to see Retail and Industrial REITS in next few months.
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