PE inflows to real estate sector shrank 32% in FY22, says Anarock

Sans portfolio deals, average ticket size reduced to $93 million

Real estate private equity (PE) investments registered a decline of 32 per cent in FY22 as compared to FY21. At least partially to blame for this was the destructive effect of the second wave of Covid which led to multiple lockdowns in various parts of the country and serious economic disruptions in almost all industries, according to a report by real estate consulting firm Anarock.

FY22 also saw a huge drop of 42 per cent in average deal ticket size compared to FY21, although it is still higher than FY18 levels. The drop in ticket sizes is largely due to investors' focus shifting back to individual assets, as opposed to their preference for portfolio deals in FY21, said Anarock. Unlike in FY21, investors in FY22 preferred single city deals over multi-city deals, resulting in the share of multi-city deals reducing by nearly 70 per cent in FY22.

Shobhit Agarwal, MD and CEO of Anarock Capital, said, "Equity continues to remain around 80 per cent of the total PE investments in Indian real estate. The commercial sector attracted the highest investment in FY22 with 38 per cent of the inflows, followed by the industrial and logistics sector with 22 per cent, and residential clocked in at a mere 14 per cent of the inflows.”

“Meanwhile, investments by domestic funds doubled in size in FY22 – from $290 million (FY21) to $600 million in FY22. The increasing confidence of domestic funds reflects the return of overall positivity after a harrowing year of pandemic disruption and uncertainty,” he added.

However, the pandemic’s impact has started to wane on the realty sector as quarterly housing sales in the March quarter (Q4) were at an all-time high since 2015 with approximately 99,550 units sold across the top 7 cities, according to data from Anarock. This is a 71 per cent rise compared to the 58,290 units sold back in the year-ago period.

Office space transactions also grew 25 per cent year-on-year in the March quarter to 10.8 million square feet (msf), according to a report by real estate consulting firm Knight Frank.

Bengaluru remained the biggest market with total leasing of 3.5 msf of office space, followed by Delhi-NCR which recorded 2.3 msf of gross leasing in the first three months. New completion in the first quarter (Q1) of CY22 was recorded at 11.9 msf led by Pune that saw fresh supply of 3.6 msf followed by Bengaluru with 2.5 msf of new office spaces.

Rents have stabilised or grown in sequential terms during Q1, the report said. Even compared to the year-ago period, rents have stayed stable or grown in five of the eight markets. Bengaluru saw the most growth with a YoY (year-on-year) rise in rental values by 4 per cent in the first quarter.

– The absence of portfolio deals resulted in average ticket size reducing to $93 million–-back to FY19 levels, yet still higher than FY18 levels

– Multiple deals slipped into the next financial year due to transactional delays

– Domestic PE investors showcased higher confidence - their contribution increased from 5% in FY21 to 14% in FY22, also remaining higher than FY18 levels

–  The listed REIT market regained sizable market cap in the last 12 months

– PE investor interest in Grade A office assets with quality tenants remain high; more ownerships are expected change hands in the coming years