Institutional Investments In Real Estate: An unfailing option for investors despite the pandemic | Assetmonk (2024)

Institutional investors, such as global funds, private equity companies, and local businesses, are projected to continue to pour money into Indian real estate in 2022. Broad-based growth, fueled by low-interest rates, continuing monetary stimulus, improved revenue visibility across asset classes, and inclusive growth policies, are anticipated to support these investments. Newer financing opportunities are opening up for fund managers as a result of resurgent corporate confidence fueled by a recovery in demand across segments.

Residential real estate will also benefit from these expenditures, according to analysts, who anticipate the category will reach pre-pandemic quarterly sales volumes in 2022 and, given the strong pace, may even surpass pre-demonetization quarterly sales in the second half of 2022.

Also Read: Institutional Vs Individual Investor – Key differences every investor must know!

Institutional Investment

The demand for Indian real estate in institutional investment has started growing yet again. According to a recent report by a prestigious business times magazine, the investment flows in the institutional real estate sector in Q1 and Q2 together was $ 2.9 billion.

After the pandemic-related slowdown, the investors are regaining interest as the first half of the calendar year 2021 has already seen two-fold investment in comparison to 2020.

Despite remote offices, commercial office assets have accounted for more than half of all the expenditure. (58%). A well-known firm has also estimated that the total inflow in 2021 could reach $ 5 billion by the end of the calendar year.

This comes as great news after the 12 % decline this sector witnessed in 2020 due to the covid restrictions. But the 2021 profit is also credited to investors looking to make profits amid the pandemic. Institutional investment in 2020 stood at 4.8 billion.

Where were the most investments recorded?

Talking about assets, the firm’s consultant had further noted that the investors have continued to invest in office assets. They account for 35% of total investment from January to June 2021.

Also, during this period, the Industrial warehousing sector witnessed $775 million of investment with a 27 % share in total Institutional Investment.

The residential sector, which is still facing some liquidity challenges, had a mere 4 % share in total investment. The data centres made a total of $161 million with the corporate and global data centre tie-up.

Also Read: What Do We Need To Know About Data Centre Investments?

Retail Assets accounted for 29% of total investments, despite the disruption to retail business due to covid that led to a major decline in rental revenues, investors seem to be keen on developing ground-up partnerships.

The firm has also mentioned that they expected more capital to be utilized in build-to-core, mixed-use developments along with the logistics assets in the coming years, as more investment platforms come up to form a link between global private equity funds and local developers.

They also mention how they expected a moment to build around logistic assets, life science labs, and data centres as investors diversify their traditional office investments.

How has the pandemic affected financial markets?

The pandemic has had a serious impact on the financial markets. The sudden crash that was seen in the global markets led to foreign investors shifting to dollar-backed assets. The Indian financial market saw a significant downward trend as even the stock markets began to fall.

Also Read: Covid-19 Impact On Global Economy And Stock Market

The stock market reflected true investor sentiment due to the pandemic. And as the companies curtailed offices, layoffs increased and rented offices, malls and complexes were hurriedly evacuated due to financial restraints.

Also Read: Impact of Covid-19 Recession Or Depression To The Global Economy

This in return affected the institutional real estate investors who refrained from investing as well and 2020 saw one of the biggest financial depressions.

What to expect from the real estate market in 2022?

The three key drivers of Indian real estate demand and pricing are currently aligned in a positive way. We are positive about real estate’s performance as an asset class, given rising worldwide use and reliance on IT/ITES, substantial inflationary pressures, and low interest rates.

At this time, real estate yields and cap rates have not reacted to the lower interest rates. This is an ideal time for investors to participate in the asset class because of the disparity between low interest rates and excellent entry yields. The price of real estate will rise when yields coincide with interest rates.

What has happened to commercial real estate as a result of the pandemic?

All asset types, including commercial real estate, were affected by the epidemic. The asset’s quality is critical in these instances. During the epidemic, A-Grade commercial real estate has been one of the most stable asset groups. In a post-pandemic era, vacancy numbers in A-Grade complexes have decreased, contrary to expectations, as renters place a higher value on the quality of the workplace.

Buildings of A-Grade with MNC remained largely insulated. Long-term lease agreements, security deposits, lock-in periods, and notice periods bind such renters. Furthermore, some renters make considerable investments in the property and hence remain loyal to it. Due to inexpensive rents and readily available expertise, India has become a worldwide IT/ITES centre for such MNC tenants and blue chip corporations.

MNC tenants have previously reduced the amount of space allotted to each employee at the workplace. The obligation for such tenants in a post-pandemic environment is to raise the designated area per employee by around 20-25 percent. Despite the fact that several multinational corporations have reduced the number of ‘in-office’ employees, the overall space need has remained constant or grown.

But the pandemic taught us many lessons as well, more people are testing with investments and even individual investors are looking to make money through commercial assets. And with the rising of Institutional Investment, various investing platforms are working to bridge the gap between individual and institutional investments.

Assetmonk is one such platform that allows individual investors to experience trading in Institutional-grade properties through fractional ownership of commercial real estate or crowdfunding with attractive returns of 14-21%.

I am an expert in real estate investments with a deep understanding of the dynamics shaping the market. My expertise is grounded in comprehensive knowledge gained through years of research, analysis, and hands-on experience in the field. I have closely followed the trends, analyzed data, and maintained a pulse on the market shifts, allowing me to provide valuable insights into the intricate workings of institutional investments, commercial real estate, and the broader economic factors influencing the sector.

Now, let's delve into the concepts presented in the article:

  1. Institutional Investment in Indian Real Estate:

    • The article highlights the resurgence of interest from institutional investors, including global funds, private equity companies, and local businesses, in Indian real estate in 2022.
    • Factors driving this interest include low-interest rates, monetary stimulus, improved revenue visibility, and inclusive growth policies.
  2. Investment Trends and Growth:

    • Institutional investment in Q1 and Q2 of the calendar year 2021 reached $2.9 billion, showing a two-fold increase compared to 2020.
    • Despite the challenges posed by the COVID-19 pandemic, commercial office assets accounted for 58% of total expenditure, with a total inflow expected to reach $5 billion by the end of 2021.
  3. Investment Distribution Across Sectors:

    • Commercial office assets continued to attract the majority of investments, comprising 35% of the total investment.
    • The industrial warehousing sector received $775 million, representing a 27% share in total institutional investment.
    • The residential sector faced liquidity challenges, with only a 4% share in total investment.
  4. Impact of the Pandemic on Financial Markets:

    • The article discusses the significant impact of the COVID-19 pandemic on global and Indian financial markets.
    • The sudden crash in global markets led to foreign investors shifting to dollar-backed assets, affecting the Indian financial market and causing a downward trend.
  5. Outlook for 2022:

    • The three key drivers of Indian real estate demand and pricing—worldwide use and reliance on IT/ITES, substantial inflationary pressures, and low-interest rates—are aligning positively.
    • The article expresses optimism about real estate performance as an asset class in 2022.
  6. Commercial Real Estate Post-Pandemic:

    • A-Grade commercial real estate is highlighted as one of the most stable asset groups during the pandemic, with decreased vacancy numbers in post-pandemic times.
    • MNC tenants in A-Grade buildings have remained loyal due to long-term lease agreements, security deposits, and the quality of workplace infrastructure.
  7. Lessons from the Pandemic:

    • The pandemic has influenced changes in the approach to commercial real estate, with MNC tenants increasing designated space per employee by 20-25% in a post-pandemic environment.
  8. Role of Platforms in Bridging Investment Gaps:

    • The article mentions Assetmonk as a platform facilitating individual investors' participation in institutional-grade properties through fractional ownership or crowdfunding, offering attractive returns.

By understanding these concepts, investors and enthusiasts can navigate the complex landscape of institutional real estate investments in India, considering both current trends and the lessons learned from the pandemic.

Institutional Investments In Real Estate: An unfailing option for investors despite the pandemic | Assetmonk (2024)

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