Private equity activity in real estate sector dips during April-June period

• The commercial real estate sector received 90% PE funding in Q1 FY 2024, as compared to 68% in Q1 FY 2023.
  
• The overall numbers were boosted by a single significant deal (Brookfield- GIC transaction) that constituted approximately 75% of the total deal activity during the period.
  
• In Q1 FY24, foreign investors continued to dominate the investment activity, accounting for 94% of the activity.
  

There was a slight decline in reported private equity (PE) deal activity in India during the first quarter of the current financial year (Q1 FY 2024), as compared to the same period a year ago. PE investments in real estate stood at $1.9 billion in Q1 FY 2024 as compared to $2 billion in Q1 FY 2023.

The overall numbers were boosted by a single significant deal of $1.4 billion (Brookfield India RE Trust REIT - GIC transaction) that constituted approximately 75% of the total deal activity during the period, according to ANAROCK Capital's report FLUX for Q1 FY24.

Says Shobhit Agarwal, MD and CEO, ANAROCK Capital, “Excluding this deal, private equity activity remained subdued owing to a high interest rate environment and global uncertainties. PE transactions in Indian real estate are, in any case, tilted towards equity investments in office assets by foreign investors. The single large deal between the consortium of GIC and Brookfield REIT with Brookfield AMC has further skewed the mix during the quarter.”

Average ticket size

Q1 FY24 witnessed a notable increase in the average ticket size (to $192 million from $100 million in FY 2023) primarily attributed to the significant transaction mentioned above. The global economic environment continues to be uncertain, particularly due to elevated interest rates. As a result, excluding the Brookfield-GIC transaction, deal volumes remained subdued in the quarter under review, says the report.

Asset class wise funding

The commercial real estate sector experienced significant activity in Q1 FY24, primarily driven by the Brookfield - GIC transaction. The commercial real estate sector thus received 90% funding in Q1 FY 2024, as compared to 68% in Q1 FY 2023. Meanwhile residential real estate received 6% of the funding, while it was 4% for industrial, and logistics.

Foreign Vs Domestic

In Q1 FY24, foreign investors continued to dominate the investment activity, much like in Q1 FY23. They accounted for 94% of the activity during this period, indicating their sustained interest, and participation in the Indian market. In Q1 FY 2023, foreign investors had contributed 90%.

Says Gagan Randev, Executive Director, India Sotheby's International Realty, “The slight decline in PE investment during the April-June quarter can be attributed to the temporary slowdown and disruptions in the global economy. Investments in office assets have been severely affected in North America by the sharp rise in interest rates and this has resulted in an upheaval in the markets there.”

However, he says that this is expected to be a transient phase, and we anticipate an increase in PE investment in the upcoming quarter.