Private equity investment in commercial real estate down 63pc to $303m in Jan-Sept: Knight Frank

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Private equity investment in commercial real estate fell 63% to $303 million between January and September as investors worried about the possible impact of high inflation on consumption, according to Knight Frank.

Private equity investment in retail was $817 million in the corresponding period last year.

“Investors have been avoiding the retail sector due to concerns about the potential negative effects that a high inflation environment would have on the sector,” real estate consultant Knight Frank India said in a “Trends in Private” report. Equity Investments in India (9Month 2022)”.

However, the consultant believed that the retail sector will continue to see capital commitments from investment platforms that remain optimistic about its growth prospects.

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Since 2011, commercial real estate has attracted $3,944 million in private equity investments through 31 transactions.

Unlike office assets, investor interest in retail goes beyond large metros, the consultant said.

Overall, Knight Frank India said India’s real estate sector received equity investments amounting to USD 4.2 billion across office, warehousing, residential and retail sectors. from January to September 2022, a decrease of 25% compared to the 5.6 billion USD recorded in 9M 2021.

“Rising inflation, rising interest rates and geopolitical turmoil all contributed to a spike in volatility and a slowdown in private equity (PE) deals in 2022,” the consultant said. .

In terms of average deal size, the industry recorded average deals of $191 million between January and September 2022, 53% higher than the average deal size of $125 million during the same period of the year. ‘last year.

Foreign private equity investors remained the main contributors.

From January to September 2022, the office sector accounted for 55% of all private equity investments, followed by warehousing (29%), residential (9%) and retail (7%).

Mumbai received the highest investments, accounting for 60% of total investments in the first nine months of this calendar year, followed by Bangalore with 17% share.

On asset data, the residential segment received investments worth $370 million between January and September 2022, down 63% from $987 million a year earlier.

Investors were cautious due to rising interest rates and rising commodity prices.

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The office sector received investments worth USD 2.3 billion in the first nine months of 2022 compared to USD 2.7 billion in the corresponding period of the previous year. Around 67% of investments were in ready assets, while 33% of investments were made in new and under construction developments as investors refrained from making risky bets.

Investment volume in the warehousing segment increased by 11% year-on-year to $1.2 billion between January and September 2022, compared to $1.1 billion received in the same period last year .

“The warehousing segment recorded the strongest growth compared to the office, residential and retail segments, as investor confidence in the sector remained high, driven by the ever-increasing need for deliveries and last mile logistics,” the consultant observed.

The high demand for warehousing and logistics space amid the pandemic and the shortage of organized assets led to several investments in greenfield facilities during the year, he added.

“The office segment remained the most popular investment choice thanks to the resilience of investment-grade office assets, while demand for the warehousing sector improved amid growing demand for third-party logistics, manufacturing and e-commerce,” the report says.

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