After a subdued 2020, PE investments to revive in 2021: Savills India

Even as private equity (PE) investment in Indian real estate in 2020 is expected to contract by 30% year on year to $4.6 billion (around Rs 3,384 crore), investor interest in the sector is likely to revive in the coming calendar year on the back of government policy support among other measures, with segments like warehousing, data centres and affordable housing expected to attract growth.

Savills India said in a report, “A likely repair of the bruised economy, improving trade relations, policy support and progress on the vaccination front, are the key factors which would drive the sentiment henceforth. The resultant push in PE investment could lead to $6 billion in 2021 as per Savills Research.”

The next wave of investments will be driven by growth in warehousing, affordable housing and data centres, apart from the commercial office segment, which will continue to see steady improvement, it said.

Warehousing and logistics has been among the most resilient asset classes during the pandemic. Warehouse leasing is expected to grow 60% year on year in 2021, keeping investors riveted and on the lookout for investment opportunities.

Savills Research also expects PE investors to assess an opportunity of around $330 million in the industrial and warehousing segment in 2021. This is around 17% higher compared to the average annual investments from 2016 to 2020.

From 2000 to 2015 almost 60% of PE investment was in the residential segment, until fund managers shifted focus to ready office assets supported by buoyant demand from 2014 onwards, and the segment has attracted around 40% of investment. The last two to three years have seen notable interest in newer asset classes like student housing, data centres, warehousing and opportunistic assets.

At the other end of the spectrum, retail investments witnessed a dwindling pattern even in the pre-pandemic period, primarily due to ever increasing adoption of e-commerce by Indian consumers and lack of incremental supply of premium quality retail malls in major cities. New mall completions reduced by almost 50% in 2015-19 from the previous five-year period.

Going forward, however, investor interest should improve, as it hinges significantly on planned supply and distress opportunity acquisition, both of which are considerable at present.

“Office space investors are likely to chase value-add and opportunistic deals for higher returns. Grade-A office spaces with marquee clients will remain favourites. Last mile funding is expected to revive stuck projects in the residential segment. Distressed purchase of assets in retail and hospitality sector is another trend that is likely to witness a spurt in the post pandemic era,” the report said.

A key component in assessing the viability of acquisition of distressed assets would include impact analysis upon expiry of both the loan moratorium relief and temporary suspension of fresh insolvency proceedings as well, it said.