Mumbai: In an indicator of the resilience and attractiveness of the Indian real estate market, private equity (PE) investments surged to USD 3 billion in the first half of 2024, reflecting a 15 per cent increase compared to USD 2.6 billion during the same period in 2023, according to Knight Frank India report.

The latest report from Knight Frank India highlights that the warehousing sector emerged as the frontrunner, accounting for 52 per cent of total investments.

The report, titled Trends in Private Equity Investment in India: H1 2024, reveals a shift in investor preferences, with warehousing surpassing traditional sectors like office and retail in popularity.

This sector attracted USD 1.53 billion, a staggering 176 per cent increase from the USD 555 million recorded in H1 2023.

Meanwhile, the residential sector also saw a surge, drawing USD 854 million--up 209 per cent from USD 277 million in the same period last year.

In terms of sector breakdown, the warehousing segment received USD 1.53 billion, making up 52 per cent of total PE investments. Key cities benefiting from this influx include Mumbai, which attracted USD 1.5 billion, and Chennai, with USD 32.3 million. T

The warehousing sector has benefitted immensely from the growth of e-commerce and a shift towards optimized supply chains. The residential sector attracted USD 854 million, accounting for 29 per cent of total PE investments.

Leading cities in this category include Bengaluru, with USD 403 million, Mumbai at USD 201 million, and Delhi-NCR at USD 97 million. This surge indicates renewed investor confidence, as investments now include both under-construction projects and early-stage developments.

The office sector, meanwhile, garnered USD 579 million, constituting 20 per cent of total PE investments. Hyderabad, Bengaluru, and the NCR emerged as the top cities for office investments, with Hyderabad alone receiving USD 265 million.

A trend in this sector is the preference for completed projects, as investments in offices saw a substantial 67 per cent decline from the previous year.

Mumbai continues to dominate the PE landscape, witnessing a substantial rise in investment inflows from USD 1.24 billion in H1 2023 to USD 1.7 billion in H1 2024.

The warehousing sector alone accounted for 88 per cent of this investment, underscoring the city's pivotal role in the logistics and supply chain ecosystem.

Currently, domestic investors hold approximately USD 2 billion in undeployed capital. This reserve positions the market for further growth as global economic conditions improve.

Shishir Baijal, Chairman and Managing Director of Knight Frank India, noted that while some Western funds are adopting a cautious approach, the long-term outlook for Indian commercial real estate remains strong.

Baijal, said, "India has been favourably viewed for investments, especially in the last decade, due to economic stability and growth. However, recent economic conditions and higher inflation have led funds from Western economies to adopt a wait-and-see stance. However, Indian commercial real estate continues to thrive due to factors like a return to work, rising office absorption and strengthening rental values."

He added, "Similarly, a year-on-year strengthening of the residential market and continued consumer activities in retail further bolstered by economic growth has incentivised funds to adopt a long-term perspective towards investment in real estate. Looking ahead, we expect some easing of conditions in the western world which will bring back the investments from global players. This, combined with India's growth trends, is expected to lead to increased investment activity from global funds."

Alternative Investment Funds (AIFs) have also emerged as significant players in the Indian real estate sector.

Since January 2021, AIFs focused on real estate have raised around USD 5.3 billion out of a targeted USD 8.2 billion, reflecting growing confidence among investors in India's potential.

Looking ahead, the Indian real estate market is expected to continue its upward trajectory, driven by factors such as the expanding e-commerce industry and supportive government policies, particularly in the warehousing sector.

The residential market, buoyed by rapid urbanization and a growing population, is also poised for sustained growth.

Despite a temporary slowdown in the office sector, demand for Grade A office spaces remains robust, especially in prime locations catering to Global Capability Centres.

Harry Chaplin Rogers, Director of International Capital Markets, Knight Frank India said, "Private equity investments in real estate are expected to remain robust in the foreseeable future, with a substantial pipeline of both undeployed capital and real estate assets. An estimated USD 2 bn is yet to be deployed from USD 5.3 bn raised for real estate in recent years."

He added, " The outlook towards India remains favourable among global funds and with the turn of interest rate cycle in western economies we anticipate that the second half of 2024 will witness strong momentum on real estate investment flows in India."

The robust performance of private equity investments in Indian real estate during H1 2024 signals a promising future for the sector.

The increased focus on warehousing and residential markets, coupled with a solid pipeline of capital, sets the stage for continued growth and innovation in the coming years.

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