Institutional investments in real estate remain robust in Q1 2023, on back of strong inflows into office sector: Colliers

• The office sector accounted for 55% of institutional investments followed by the residential sector at 22%.
  
• Despite higher lending rates, domestic investors showed strong interest in residential assets.
  
• The larger markets of Delhi-NCR and Bengaluru attracted one-third of the total investments.

During the January-March quarter of 2023, institutional investments in real estate remained robust, reaching a total of $1.7 billion. This positive trend was mainly driven by the office sector, which accounted for 55% of the total investment inflows, followed by the residential sector at 22%.

The office sector saw a year-on-year increase of 41% in investment inflows, reaching $0.9 billion, largely due to a few significant deals. Given the promising growth potential in the office sector, major institutional investors are forming strategic partnerships to bolster their presence and expand their office portfolio in India.

Says Piyush Gupta, managing director, capital markets and investment services, Colliers India, “Indian real estate investment cycle is now transitioning into a phase to witness secondary market transactions and may see more institutional owners partially or fully divesting portfolios. In the coming quarters, we shall see some large quality assets traded in the office and select logistics assets.”

During the quarter, there was a significant increase in investments made by domestic investors, which quadrupled year-on-year. Despite higher lending rates, domestic investors showed strong interest in residential assets. In contrast, global investors preferred office and industrial assets, and accounted for 76% of the total investment inflows.

The larger markets of Delhi-NCR and Bengaluru attracted one-third of the total investments, mainly due to increased activity in those areas. However, most of the inflows (63%) were from multi-city deals.

Investments in industrial assets surge

During the first quarter of 2023, investment inflows in industrial assets increased by 20% compared to the previous year, reaching $216.3 million. This growth was primarily driven by foreign investments and can be attributed to the manufacturing opportunities, favourable government policies, and growth in e-commerce.

In addition to investing in core assets, investors have also been allocating funds towards alternative assets. This trend has been on the rise, with $158.2 million being infused during the first quarter, which is four times more than the same period last year.

The significant inflows in the alternatives segment were primarily due to a large deal in the hospitality sector. By diversifying their portfolios with alternative assets, many funds have been able to enhance their ability to grow their portfolios and remain resilient during these uncertain market conditions, the report said.

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