Institutional investments in real estate stage smart recovery during Q4 2020

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Updated: Jan 21, 2021 2:43 PM

2020 closed with $5 billion investments, equivalent to 93% of 2019 transactions ($5.4 billion), despite a sudden halt brought on by the pandemic.

A deeper analysis of institutional investments in 2020 indicates that the recovery has been narrow-based, as 27 deals were transacted in 2020 over 54 in 2019.

Institutional investment in the real estate sector in India staged a smart recovery during Q4 2020 with $3.5 billion investments. As a result, 2020 closed with $5 billion investments, equivalent to 93% of 2019 transactions ($5.4 billion), despite a sudden halt brought on by the pandemic, according to JLL’s ‘Capital Markets Update: Q4 2020.’

The 2020 comeback holds significance when seen against the pace and percentage of the recovery from the last global financial crisis (GFC). Not only did the post-GFC recovery phase take more than three years, but the drop in 2009 was more than that witnessed in 2020. Over the years, investments have moved in tandem with reforms and maturity in the real estate sector. Moreover, various structural reforms during the last decade have brought the much needed transparency and accountability to the sector.

A deeper analysis of institutional investments in 2020 indicates that the recovery has been narrow-based, as 27 deals were transacted in 2020 over 54 in 2019. The two large portfolio deals with an estimated value of $3.2 billion accounted for 65% of the total investments in 2020. These investments by large global funds in times of uncertainty indicate the availability of quality assets at attractive valuations, as per the report.

A sharp recovery in institutional investments in 2020 over the previous global crisis

The pandemic led to pullback in investments due to uncertainty over income stability and return to normalcy. However, large global funds took this opportunity to negotiate portfolio deals with developers who offered quality rent yielding assets in cities with a higher presence of global technology players as well as global in-house centres.

The two major deals in 2020 – the Blackstone Group taking over of 21 million sq. ft of completed and under construction office, retail and hospitality assets from Prestige Estate Ltd for estimated USD 1.2 billion and the Brookfield Group’s entering into an agreement with RMZ Developers to acquire around 12.5 million sq. ft of office and co-working assets for around $2 billion indicate that office assets account for a major share of the portfolio deals.

“India’s office sector has witnessed continuous growth over the last four years with the average annual net absorption crossing 30 mn sq. ft, leading to steady rentals and capital appreciation till the onset of the pandemic. Global investors, looking for stable yields and regular returns, believe that the technology sector driven office space demand is expected to grow further and keep absorption robust,” said Dr Samantak Das, Chief Economist and Head of Research & REIS (India), JLL.

India’s Grade-A office stock of 629 million sq ft as of Q4 2020, with sub-5% vacancy levels in Bengaluru, Hyderabad, Chennai and Pune as well as in prime sub-markets of Mumbai, Delhi NCR and Kolkata, make the asset class ideal for investments.

Bengaluru, with 150 million sq ft of Grade-A office stock, has the largest share (23%) of India’s total office stock among its top seven cities. India’s Silicon City is home to major global as well as domestic technology players, technology start-ups and global in-house centres of multinational companies. The two large transactions accounted for most of the city’s office assets, leading to a 74% share of investments in 2020.

The year 2021 has started on a positive note with hopes of return to normalcy over the next few quarters. During the July-September 2020 period, the Indian economy recovered at a better-than-expected pace, as the phased lockdown relaxation measures helped to resume economic activity.

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