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Dr. Samantak Das, JLL

Real estate sector registered USD 5 bn institutional flow of funds in the year 2020: JLL

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Dr. Samantak Das, JLL

Mumbai, 21 January 2021: Institutional investment(1) in the Indian real estate staged a smart recovery during Q4 2020 with USD 3.5 billion investments. As a result, 2020 closed with USD 5 billion investments, equivalent to 93% of 2019 transactions (USD 5.4 billion), despite a sudden halt brought on by the pandemic according to JLL’s ‘Capital Markets Update: Q4 2020’ report released today by JLL.  

The pandemic led to pull back in investments due to uncertainty over income stability and return to normalcy. However, large global funds took this opportunity to negotiate portfolio deals with developers who offered quality rent yielding assets in cities with a higher presence of global technology players as well as global in-house centers. A deeper analysis of institutional investments in 2020 indicates that the recovery has been narrow-based, as 27 deals were transacted in 2020 over 54 in 2019. The two large portfolio deals with an estimated value of USD 3.2 billion accounted for 65% of the total investments in 2020. These investments by large global funds in times of uncertainty validate the investment potential of Indian real estate.

Office assets account for a major share of investments in 2020

The two major deals in 2020 – the Blackstone Group taking over of 21 million sq. ft of completed and under construction office, retail and hospitality assets from Prestige Estate Ltd. for estimated USD 1.2 billion and the Brookfield Group’s  entering into an agreement with RMZ Developers to acquire around 12.5 million sq. ft of office and co-working assets for around USD 2 billion indicate that office assets account for a major share of the portfolio deals..

“India’s office sector has witnessed continuous growth over the last four years with the average annual net absorption crossing 30 mn sq. ft, leading to steady rentals and capital appreciation till the onset of the pandemic. Global investors, looking for stable yields and regular returns, believe that the technology sector driven office space demand is expected to grow further and keep absorption robust”, said Dr Samantak Das, Chief Economist and Head of Research & REIS (India), JLL.

Asset wise investments                                   (USD million)

Asset class20192020
Residential        1,074           460
Office        2,876        3,102
Retail           584                –  
Hospitality           567           130
Portfolio deal (office, retail & hospitality)               –          1,248
Warehousing           331             94
Grand Total        5,431        5,034

Source: JLL Research

Lessons from past

The 2020 comeback holds significance when seen against the pace and percentage of the recovery from the last global financial crisis (GFC). Not only did the post-GFC recovery phase take more than three years, but the drop in 2009 was more than that witnessed in 2020 (see Fig. 1). Over the years, investments have moved in tandem with reforms and maturity in the real estate sector. Moreover, various structural reforms during the last decade have brought much-needed transparency and accountability to the sector.

Figure 1: A sharp recovery in institutional investments in 2020 over the previous global crisis

Pandemic period recovery
USD bn
Post-GFC recovery

Source: JLL Research

Looking Ahead: Strong economic recovery to boost investment climate

The year 2021 has started on a positive note with hopes of return to normalcy over the next few quarters. During the July-September 2020 period, the Indian economy recovered at a better-than-expected pace, as the phased lockdown relaxation measures helped to resume economic activity. There were signs of further growth during the festive season of October–December 2020 as indicated by various macro-economic indicators. The Indian economy is hence expected to bounce back and grow by 8.8% during the calendar year 2021. The backdrop of economic recovery and return to normalcy is expected to bring visibility to the income stability of rent yielding assets, which will help in asset pricing. Investors are likely to get more decisive and deploy the dry powder aggressively.

India’s real estate sector is expected to see the following trends:

  1. Investment outlook to remain optimistic over the year as expectations of continued low-interest rates, huge amounts of dry powder and chase for yield drive transaction volumes
  2. Investments to gain momentum during the second half of 2021 as investors increase their exposures
  3. Listing of forthcoming REITs to drive investment volumes in 2021
  4. Sustainable core office assets to be favoured by investors as they align with occupier demand and provide income stability
  5. Logistics and data centres to attract new set of investors
  6. Platform deals in the logistics sector likely to remain active as the segment benefitted from growing e-commerce demand as well as pandemic induced demand for cold storage facilities from pharma sector
  7. Recovery in the residential segment and changes in FDI regulation could ignite investment appetite for mid and affordable housing projects
  8. Platform deals in the logistics sector likely to remain active as the segment benefitted from growing e-commerce demand as well as pandemic induced demand for cold storage facilities from pharma sector
  9. Recovery in the residential segment and changes in FDI regulation could ignite investment appetite for mid and affordable housing projects

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