In 2023, institutional investments in the real estate sector soared to over $5.8 billion across 53 deals, marking a 14% uptick from the previous year. This growth reveals India's ability to withstand global economic challenges. According to JJL India’s latest report, "Investing in Tomorrow: The Real Estate Journey of 2023," it is anticipated that investor confidence in India’s growth narrative will remain strong through 2024.
Foreign institutional investors accounted for 63% of all investments in 2023, making them the primary contributors. Historically, American investors had the largest share but dropped to 23% of total investments, down from a peak of 43% in 2022.
On the other hand, domestic investors significantly increased their market share, securing 37% of all investments, a notable rise from an average of just 19% over the last five years.
Equity investments dominated the landscape, representing 81% of the total real estate investments made. Notably, non-core assets constituted 53% of all transaction volumes.
Looking ahead to 2024, the report forecasts that the office sector will remain the most attractive industry for investors.
Holding a commanding 52% of the investment share, the office sector led the way, with residential and warehousing sectors capturing 13% and 16%, respectively. Capital flowing into the office sector saw an impressive rise of 61% in 2023, surging from $1.8 billion in 2022 to $3 billion across 15 deals.
Emerging Industries Set to Attract Capital
In the coming years, various institutional investments are expected to focus increasingly on emerging sectors such as student housing, data centers, and warehousing. Investors have begun to pay extra attention to student housing, recognizing it as a promising asset class due to the growing number of college enrollees and the demand for quality accommodations.
In 2023, institutional investments in India demonstrated resilience, remaining unaffected by inflation or ambiguous global economic developments. This consistent trend of investments exceeding $5 billion has been observed since 2018. While investment activity from the US and Canada decreased due to a series of rate hikes, the APAC region made a significant contribution in 2023. The outlook for India’s economy continues to be optimistic, and it is expected that this positive trend will extend into the calendar year 2024, as noted by Lata Pillai, senior managing director and head of capital markets at JLL India.
Pillai remarked, "The India growth story will continue to be robust, driven by its inherent strengths and continued focus on economic development, even though the upcoming elections may cause delays in decision-making."
Platform Commitments Decline
In 2023, notable platform commitments reached $2.8 billion, intended for investment in the following years; however, this represented a significant decrease of 38% from 2022, which had the peak growth in platform deals—up 174% from 2021.
Despite the increase in investment activities, the global economic downturn has adversely affected investor confidence concerning long-term commitments. Ivanhoe Cambridge and Mapletree executed the largest platform commitment deal in India's technological office sector last year, with over $1.8 billion available for investment.
Real Estate Investment Trusts (REITs) Expand Access
The recent introduction of REITs has enabled more real estate businesses and investors in India to tap into public markets with greater ease, thanks to the structured regulations they provide. In 2023, India's first retail REIT, Nexu Select Trust REIT, made its public debut. The IPO received a positive response from anchor investors, who absorbed 45% of its total offering.
The last two REITs, Brookfield REIT and Nexus Select Trust REIT, saw increased participation from domestic institutional investors, which indicates growing interest and confidence in India’s REIT landscape. In 2023, Blackstone divested its 23.5% stake in Embassy Office Parks REIT for $850 million, equating to Rs 316 per unit.
Three leading purchasers—Bain Capital, ICICI Prudential MF, and Capital Group—acquired stakes ranging from 7% to 9%. This robust interest from institutional investors points toward the rising popularity of this investment tool, as real estate trends toward institutionalization.
2024 Outlook
India’s growth trajectory has benefited from government initiatives aimed at boosting infrastructure and implementing structural reforms. Market experts believe this positive trend will persist, sustaining investor optimism regarding India’s growth projection.
However, close monitoring of capital flow trends will be essential as we move into 2024. Notably, the slowdown in capital flows observed in Q4 may reflect a more cautious approach from investors, particularly those with foreign experience. Investors might grow increasingly risk-averse in their real estate decisions, influenced by long-term uncertainties and monetary tightening in developed economies. While the upcoming elections might delay some decisions, overall market sentiment appears to remain positive.