Decline in Institutional Investments Hits Real Estate Sector

Despite the enduring enthusiasm of Indians for homeownership, institutional investors appear to be taking a cautious stance on the real estate sector. According to a report by Colliers, investments in real estate witnessed a significant decline of 40% in the Jan-March quarter of the fiscal year 2024 compared to the same period last year.

Shift in Investment Patterns

During the recent quarter, institutions injected $1 billion into the sector, marking a notable decrease from previous levels. Domestic institutions, however, emerged as key players, constituting 45% of the total inflows. This figure represents a substantial increase from the preceding year, where their share stood at 24% in Jan-March 2023.

Rising Confidence in Domestic Market

Piyush Gupta, Managing Director of Capital Markets & Investment Services at Colliers India, commented on the growing confidence of domestic investors in Indian real estate. He noted that office and residential assets accounted for about 66% of domestic institutional investments, showcasing a strategic alignment with India’s growth trajectory.

Dominance of Tech-Centric Cities

The office sector continued to attract the bulk of investments, totaling $600 million. Bengaluru and Hyderabad emerged as frontrunners, capturing an 81% share of office investments. This trend mirrors the robust demand for Grade A office spaces observed in these cities, accounting for more than half of India’s leasing activity.

Foreign Investment Landscape

Foreign investments remained dominant in the sector, driving over two-thirds of the total inflows. Colliers emphasized the preference of institutional investors for completed and pre-leased income-yielding office assets over greenfield developments.

Diversification Across Segments

Apart from the office sector, investments flowed into industrial & warehousing ($200 million) and residential segments ($100 million). Pune, Chennai, and Delhi-NCR attracted significant investments in industrial and warehousing assets.

Future Outlook

Colliers highlighted the evolving landscape of the industrial and warehousing segment, predicting a surge in consolidation and institutionalization. The firm emphasized the role of global capital in driving this transformation, particularly as micro-fulfillment centers, dark stores, and AI-driven supply chains become more prevalent.

APAC Region’s Influence

In the March quarter, the Asia-Pacific (APAC) region accounted for over 82% of foreign inflows into India’s real estate sector. Vimal Nadar, Senior Director and Head of Research at Colliers India, attributed the surge in investments from APAC countries like Singapore to various factors, including a favorable investment climate and strategic alliances through joint venture platforms.

As institutional investors navigate the uncertainties in the real estate market, their cautious approach underscores the need for a strategic and diversified investment strategy to capitalize on emerging opportunities while mitigating risks.