Knight Frank India Report: PE investment in realty falls 93% in Jan-May

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Published: June 11, 2020 9:48 AM

Warehousing has seen only two deals, suggesting an overall investment volume decline in warehousing space due to the lockdown. However, the adverse impact of the pandemic on warehousing segment will be relatively less compared to other asset classes.

After rising between 2015 and 2018, the PE investments in office assets declined in 2019.

PRIVATE EQUITY INVESTMENTS in real estate dropped 93% to $238 million in 2020 till May compared to last year, as only five deals concluded during this period. The drop can largely be attributed to the Covid-19 pandemic,
which has affected investor sentiments, as well as the economic slowdown in India in 2019.This year has also
recorded 80% drop in the number of deals concluded in the first five months, compared to the same period last year,
revealed the latest report by Knight Frank India.

“Sharp slowdown in the domestic economy and specifically real estate sector will keep the investors cautious. Moreover, with international funds reorienting themselves to attractive opportunities in the developed economies on
account of drop in valuations due to recession, this would cast its shadow on the PE investments in Indian real estatein2020,”the report said.

After rising between 2015 and 2018, the PE investments in office assets declined in 2019. Lack of mature office assets kept the investors at bay. However, some interests have been there in under-construction and greenfield developments. So far in 2020, only two deals, amounting to $141 million, have been concluded, with transactions for 2.9 million square feet of office space.

The retail sector has not seen any investments so far this year. Due to the pandemic, many tenants in India have
invoked the ‘force majeure’ clause in their rental agreements and are demanding rent-free periods and other concessions to compensate for the shutdown. Retail occupiers are likely to push for greater revenue share arrangements instead of existing model of minimum guarantee plus revenue share.

Warehousing has seen only two deals, suggesting an overall investment volume decline in warehousing space due to the lockdown. However, the adverse impact of the pandemic on warehousing segment will be relatively less compared to other asset classes.

The residential sector has been the worst-affected for the past few years, and investors’ interest has shifted from equity to debt or structured-debt instruments. This year, there was only one PE investment in the residential sector worth $40 million. The beleaguered residential sector has been further impacted due to Covid- 19.

Residential sales were already slow and the demand from homebuyers is expected to dwindle this year, the report
observed. Shishir Baijal, chairman and managing director, Knight Frank India, said, “The decline in PE investments in real estate had started in 2019, when it fell by 23% y-o-y to $6.8 billion. We are operating in uncertain
times. Having enforced one of the most stringent lockdown measures globally, 2020 would be a challenging year for Indian businesses.

The recall of undeployed capital by sponsors, the emergence of attractive opportunities globally, increase in
risk premiums, contraction in Indian GDP and Covid-19 related uncertainties would cast its shadow on investors sentiments and we expect the investor activity to be subdued in 2020.”

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