By Despite witnessing significant highs in terms of home sales and rising office occupancies, the real estate sector faced a notable concern in the form of slipping private equity (PE) investments. According to a report by Anarock, PE investments in the sector experienced a 26% decline in the first nine months of FY24, spanning from April to December 2023.
Factors Contributing to Muted Investor Activity
Geopolitical uncertainties and a high-interest rate environment contributed to tepid investor activity. In particular, domestic investments dwindled to 14% of total capital flows, amounting to $360 million, compared to $717 million in the corresponding period of the previous year. Shobhit Agarwal, MD & CEO of Anarock Capital, highlighted that domestic alternate investment funds (AIFs) witnessed lower activity levels, primarily due to reduced demand for high-cost funds in the residential real estate debt segment.
Mega Deals and Changing Dynamics
Despite the overall decline, the average ticket size marginally increased to $95 million, primarily propelled by a mega $1.4 billion deal involving Brookfield India Real Estate Trust REIT and Singapore’s GIC. This deal, which involved the acquisition of two commercial assets in Mumbai and Gurugram, also contributed to a significant rise in multi-city transactions.
Shift in Investment Focus
Office spaces emerged as the primary focus for PE investments, dominating the landscape of big-ticket deals. Additionally, data centers emerged as an emerging asset class, garnering investor interest. Domestic debt funds also exhibited a keen interest in commercial projects, with Varde Partners investing $91 million in a Hyderabad-based project by Phoenix Group.
Resilient Sectors and Large Deals
Residential real estate also witnessed notable activity, with HDFC Capital and PAG investing over $60 million in CCI Projects and Kalpataru Group, respectively. Despite an overall softening in flows, large deals continued to dominate the scene, accounting for 87% of the total value of PE investments. Equity investments remained the preferred route for PE investors, comprising 84% of total deals, highlighting the sector’s overall health and resilience.
