In Q2 2023, institutional investments in the office sector reached $1.8 billion, the highest level over the previous 10 quarters, indicating continued investor confidence in the sector’s prospects for development and return.
The segment likewise experienced 2.5X year-over-year growth in H1 2023, reaching $2.7 billion, with the office sector accounting for the majority of inflows at 74%, closely followed by the residential sector at 12%.
Global investment firms, including GIC, CapitaLand India Trust, Bain Capital, CPPIB, and PAG Credit and Markets, continue to be engaged in the sector and have closed some sizable transactions. On the strength of expanded opportunities, steady demand, and strong growth prospects over the following two to three years, institutional investors have placed their bets in the office sector.
“The office industry is going through a global recalibration; therefore, investment decisions are likewise taking longer. Additionally, while investors reevaluate global macro concerns, interest rates and inflationary pressures are temporarily putting investors in a wait-and-watch mode, according to Piyush Gupta, Managing Director, Capital Markets & Investment Services at Colliers India.
Institutional investment inflows into Indian real estate, led by the office sector, increased 43% year over year to $3.7 billion in the first half of 2023; despite a sluggish global economy, the investment accounted for 75% of all inflows in 2022.
“While the India story for the office asset class is sailing slowly with modest growth notwithstanding WFH, the US office vacancy has caused the larger investors, particularly those with shorter fund lives, to adopt a more cautious stance. But the long-term investors are unmistakably increasing their stakes. Juggy Marwaha, CEO of Prestige Office Ventures, said, “Given that there is still a tremendous chance for a significant upside in the not-too-distant future,
Over the past five years, foreign investments in the office sector have been supported by a strong and rising demand for Grade A office space, a strong supply pipeline, improved transparency, and the availability of exit strategies like REITs, among other factors.
While the majority of the current notable office projects are already funded by top institutional investors, a strong supply pipeline of more than 150 million square feet (at various stages of development) across the top six cities offers newer investment options in the following three years.
The Indian office market has become corporatized thanks to REITs, and favorable regulatory changes have increased investment in the industry. Only 11% of Grade A office stock in the top 6 cities is currently listed as a REIT, but there is still an extra 57% of untapped potential.
Improvements in home demand, stable interest rates, and strong affordability levels have all contributed to a recovery in residential asset investments. During the first half of 2023, the residential sector had an impressive five-fold rise in investment inflows, reaching $433.4 million, largely driven by domestic investments. A roughly two-fold rise in investment inflows into industrial assets was also observed, driven by the sector’s continued expansion in the face of increased consumption.
