'Indian real estate most preferred in Asia-Pacific for global investors'

India’s real estate market has emerged as the most preferred destination for global investors in Asia–Pacific region, receiving over $23 billion since 2018, accounting for 77 per cent of the total investments during this period, said Colliers’ APAC trends Investor Outlook 2023 on Wednesday.   

Colliers data also shows institutional investment in real estate soared 27 per cent year-on-year in the first nine months of 2023, with a surge in deals targeting both industrial and residential sectors. According to the firm this rise is closely connected to the country’s growth trajectory. 

“The preference of India within Asia Pacific growth markets is getting stronger, driven by the strong performance of the economy, improved regulatory framework and robust demand across multiple real estate sectors. Global investors have consistently preferred the Indian real estate market, infusing over $23 Billion since 2018, accounting for 77 per cent of the total investments during this period,” said Vimal Nadar, Senior Director and Head of Research, Colliers India. 

Nadar further noted that the US remains the top investor contributing to about 44 per cent of the foreign inflows, followed by Canada and APAC at 25 per cent share each.

The Canada-based management firm expects India to remain one of the world’s fastest-growing major economies, led by private consumption and capital formation. 

Asset class-wise Investments inflows in India between 2018 to September 2023:
 

Asset Class

Investment inflows 2018-September 2023 (in $ billion)

Office

11.4

Residential

2.6

Alternate assets*

2.3

Industrial & Warehousing

2.5

Mixed use

2.9

Retail

1.6

Total

23.3

*Alternate assets include data centres, life sciences, senior housing, holiday homes, student housing etc. 

Source: Colliers

“As more established markets start to stabilise, investors are growing more confident about extending their search for opportunities in growth markets. The opportunities to invest in India continue to spread across office, logistics, private credit, residential and data centres,” said Piyush Gupta, Managing Director, Capital Markets & Investment Services, India. 

Global investors remain bullish on India going forward

From the lens of global and APAC investors, the Indian real estate market currently offers stable returns paired with attractive pricing, better valuations, and higher yields, according to the report. 

“Foreign investors are likely to remain bullish on the Indian market over the next few quarters, as the interest cycle continues to reverse, and the yield spread between bonds & real estate continues to widen, making real estate an attractive proposition,“ said Nadar. 

Institutional investors capitalising on data centres

According to the report, institutional investors are specifically capitalising on India’s data centre growth, sparked by the stable income, higher yields and supportive regulatory framework of this asset class, which has infused $1.1 billion since 2020. 

According to the report, India is rapidly emerging as a data centre destination, with the firm projecting the local sector could see $10 billion in investment over the next three years alone. 

Office space remains the dominant choice 

According to the report, institutional investors In India continue to bet on the office sector, on the back of increased opportunities, resilient demand, robust growth prospects and availability of exit avenues in the form of REITs. 

During 2023, institutional investments in office assets rose 1.6 times on year at $ 2.9 billion, accounting for about 63 per cent of the total inflows for the nine months of this year. 

While global investors continue to dominate funding activities with higher participation in entity-led deals, domestic investors have also become more active in the market, the report noted. 

“We're also seeing more regional investors and funds beginning to underwrite India as a market, and to understand its dynamics as part of a wider investment strategy,” said the report. 

It further said that performance credit, special situations, portfolio acquisitions, asset reconstruction and related structures have been growing and are likely to attract more investments.

“A lot of foreign funds are considering what big markets in the region they can invest in, and India’s been the net recipient of that. Particularly in the office and logistics sectors, it’s become a very institutional market dominated by Canadian and Singaporean capital,” said Chris Pilgrim Managing Director, Global Capital Markets, Asia Pacific. 

High activity is expected in APAC growth markets 

Colliers anticipates a more positive 2024 than 2023, with a lot of pent-up equity, which is looking to find a home. 

“Particularly within the APAC region, investors are aware of the resilience of the asset class and the growth opportunities offered in rapidly maturing markets such as India and South Korea,” said the report. 

Notably, Colliers APAC Outlook is based on a series of interviews conducted with senior Colliers experts as well as a survey of over 900 property investors in October and November 2023, over 400 of which were from Asia Pacific. 

The survey data points to an upswing in the proportion of investors planning to boost real estate allocations. Almost 60 per cent of APAC investors expect strong regional economic growth to contribute positively to the real estate sector. 

The survey data points to an upswing in the proportion of investors planning to boost real estate allocations, with 75 per cent of respondents planning to dedicate 5-20 per cent of assets under management to real estate in the future, up from 64 per cent currently. 

More awareness of ESG goals in real estate sector

The report also highlighted rising awareness of Environmental, Social, and Governance (ESG) goals. According to the report, as ESG has become pivotal to occupiers and investors across the globe, Indian investors have also started formulating strategies around ESG that are aligned with their long-term ESG targets.  

“Although at a nascent level, investors have started monitoring & reporting their environmental impact as a part of due diligence and asset management activities aiming long term resilience and growth of their businesses,” said the report.  

Office assets specifically, as per the report, have seen increased adoption of green certifications, owing to rising demand for green buildings and higher rental premiums compared to other asset classes.

According to the report, among APAC investors surveyed 28 per cent reported fully assessing the ESG performance of their assets, versus just over 20 per cent last year.