Real estate witnesses 93 pc drop in PE investments: Knight Frank India
Jun 10, 2020
Mumbai (Maharashtra) [India], June 10 : The private equity investment activity dropped to 238 million dollars with only five real estate deals getting concluded in the first five months of 2020, marking a 93 per cent drop year-on-year, according to a new report released on Wednesday by Knight Frank India.
The drop can largely be attributed to COVID-19 pandemic which impacted investor sentiments as well as a slowdown in the Indian economy since last year. 2020 has also seen 80 per cent drop in the number of deals concluded in the first five months when compared to the same period last year.
A sharp slowdown in the domestic economy -- specifically the real estate sector -- will keep the investors cautious, said Knight Frank India.
Moreover, with international funds reorienting themselves to attractive opportunities in the developed economies on account of a drop in valuations due to recession will cast its shadow on PE investments in Indian real estate during 2020.
After rising for four consecutive years, PE investments in office assets declined in 2019. The lack of mature office assets is forcing investors to look at opportunities in under-construction assets and greenfield developments.
So far, only two deals amounting to 141 million dollars have been concluded in 2020 and 2.9 million square feet of office space got transacted.
There were no investment deals in retail space. Due to the pandemic, many tenants invoked the 'force majeure' clause in their rental agreements and demanding rent-free periods. As a result, retail occupiers are likely to push for greater revenue share arrangements instead of the existing model of minimum guarantee plus revenue share.
PE investors have invested over 7.3 billion dollars in the warehousing industry in the previous decade with 78 per cent of the investments going towards creating new assets. In 2020, only two deals were concluded, suggesting an overall investment volume decline in warehousing space due to Covid-19 induced lockdown.
PE investors' preference for investing in residential assets has shifted from equity to debt or structured debt instruments. In 2020, there has been only one PE investment in the residential sector worth 40 million dollars. The beleaguered residential sector has been in turmoil for several years now and Covid-19 will act as another nail in the coffin.
Shishir Baijal, Chairman and Managing Director of Knight Frank India, said even though India continues to remain an attractive destination globally for companies to have their offices in, the prevailing business uncertainty and any event of recession forecast in upcoming quarters of 2020 will reduce overall demand and impede expansion plans of occupiers.
"With pay cuts and job losses becoming pervasive, the residential and retail segments will have to chart an arduous journey towards recovery. The warehousing segments will be the fastest to recover followed by office," he said.
