JOIN USReal estate sector attracts $6.3 billion PE investments in FY21
Despite the Covid-19 pandemic disrupting businesses over the last year, the Indian real estate sector recorded its highest-ever private equity investments in 4 years. The sector attracted $6.27 billion PE investments in 2020-21 as against $5.8 billion in the previous year, a year-on-year growth of 19%.
Unlike earlier, FY21 saw private equity investors focus majorly on portfolio deals across multiple cities and assets, rather on specific projects or cities. Such portfolio deals constituted 73% of the overall share, with approximately $4.5 billion invested via portfolio deals in multiple cities, according to Anarock Capital.
The average ticket size of PE deals rose by 62% in the fiscal year – from $110 million in FY20 to $178 million in FY21. Both structured debt and equity witnessed strong growth during the year at 84% and 15% respectively. Structured debt was largely towards portfolio deals instead of project-level assets.
Though FY21 was an unprecedented year due to the pandemic, foreign PE funds showed much optimism for India. As much as 93% of the total PE investments pumped into Indian real estate was by foreign investors. In actual terms, investments by foreign PE funds almost doubled from $3 billion to $5.8 billion in FY21. In contrast, domestic PE funds invested merely $300 million compared to $420 million in FY20.
"Foreign funds are evidently very upbeat about India. High-grade rental-generating assets have attracted foreign investors in a big way during the year. Moreover, India has a strong underlying demand for office space with quality workforce and average rentals available at less than a dollar per sq. feet per month," Shobhit Agarwal, MD & CEO, Anarock Capital said.
"Alongside, the successful REIT listings have provided a good monetising option for PE investors, leading to a stronger demand for good quality rental earning office and retail assets," he says.
Among other significant trends, the share of asset classes like commercial, retail and hotel has been good. While the asset class-wise bifurcation shows lower percentage, when considered along with portfolio deals (where bifurcation is not available), the share of these asset classes is strong. Nearly 66% of the total inflows ($6.27 billion) in FY21 was across portfolio deals in multiple asset classes.
Data centres are becoming the new sunrise sector, gaining more attention from PE investors and strategic investors.
In contrast, in FY20, out of the total $5.28 billion total inflows, just 8% of the total comprised portfolio deals, Anarock Capital said in its report: 'Flux-FY202-21 Market Monitor for Capital Flows'.
Among the foreign PE investors that remained major contributors for overall PE inflows in India, Canada and US-based investors pumped in more than 50% of the total foreign PE investments in FY21.
REITs enjoyed wider acceptance in the country; healthy fundraising continued in public market, REIT sizes - $608 million Mindspace & $514 million Brookfield India REIT.
The industrial and logistics sector had strong investor support. Key emerging trends in this sector - rise of automation, urban multi-level warehousing, de-centralisation, increasing business consolidation, and high demand for Grade A assets.