Institutional investments in the Indian real estate sector maintained a steady momentum at $5.4 billion, up 10 per cent YoY during 2023, said a report by Colliers India. The year witnessed the highest levels of investment inflows since 2020 showcasing India’s resilience despite uncertainties in global markets otherwise. While foreign investments, it added, retained their dominance, forming 67 per cent of the total inflows for the year, domestic investments also registered an impressive 66 per cent annual increase at $1.7 billion. In terms of different segments, office sector continued to be the largest contributor in real estate investments for 2023 with 56 per cent share in total inflows, attracting both global as well as domestic capital. “While the overall investment inflows during the year remained sturdy, the last quarter of the year saw moderation. At $0.8 billion, Q4 registered a 37 per cent YoY drop in investments. Alternatives, meanwhile, had a 51 per cent share in total inflows during Q4 2023, indicating strong demand in segments including data centres, student housing, life sciences, schools, etc.
Global investments in Indian real estate sector
“As India’s real estate sector closes yet another promising year, institutional investments saw an increase of 10 per cent and stands at $5.4 billion—the highest since 2020. The investments in Indian real estate are more broad-based, with significant investments coming into education, shared spaces, and data centers, adding to a strong domestic upcycle in office, residential, and industrial areas. Investors from the APAC region have been showing an increasing appetite for Indian real estate, contributing to about half of the total foreign inflows during 2023,” said Piyush Gupta, Managing Director, Capital Markets & Investment Services at Colliers India.
“Looking ahead to 2024, investment activity is likely to remain unabated backed by robust domestic economic fundamentals, while a strategic integration of technology and ESG will play out in investment decisions,” he added.
Domestic capital inflow
Domestic investors have emerged as active contributors, contributing 32 per cent of the total real estate investments in 2023, compared to 22 per cent share in 2022. While the office market continues to be the frontrunner backed by investments from global players, domestic investors are focusing more on alternative and residential assets.
Office sector takes the lead; investments in alternatives rebound significantly
Led by select large deals, investment inflows in the office sector rose 53 per cent YoY to $3.0 billion during 2023. The uptick reflects a rising interest in completed and pre-leased income-yielding office assets, showcasing investors’ sustained confidence in the long term potential of the sector. Notably, investors are actively establishing Joint Venture (JV) platforms to capitalize on emerging opportunities and participate in both existing and upcoming office projects.
“In the ever-evolving tapestry of India’s real estate landscape, while investors continue to diversify portfolios, the office sector continues to enjoy significant affinity. Fuelled by strong demand for Grade A commercial developments, investments in the office sector continue to grow from strength to strength. As 2023 witnessed record breaking office space leasing activity, global institutional investors remained committed to building office portfolios in India. Office led investments had a commanding 56 per cent share in total real estate inflows in 2023. Along with envisaged momentum in alternative assets, industrial & warehousing, and residential sectors in the next few quarters, the office sector will continue to dictate India’s real estate investment ecosystem,” said Vimal Nadar, Senior Director and Head of Research, Colliers India.
Industrial & warehousing up 2x in 2023
Industrial & warehousing segment saw a two-fold rise with about $0.9 billion inflows marking the highest increase across all segments in 2023. This, the report said, is credited to the sustained expansion of the industrial sector, thriving on heightened consumption levels. “As the sector evolves, we are likely to witness increased consolidation as well as institutionalisation in the sector. With micro-fulfilment centres, dark stores and AI driven supply chains becoming an integral part of the industrial & warehousing segment, foreign investments in the sector are expected to rise multi-fold in the next few years,” the report said.
Investments in Alternatives
After witnessing subdued activity in the first three quarters, investments in alternatives rebounded in the last quarter, taking the overall inflows in alternatives to $650 million for the year. Q4 2023 accounted for 65 per cent of the total investments in alternatives in 2023. Meanwhile, student housing accounted for about 60 per cent of the investment inflows within alternatives during the year. Rising institutional interest has been driven by the surge in higher education enrolment, favourable demographic distribution pattern, and growing migration of students to cities. This trend reflects a constant recalibration of investor and developer interests which aligns with students’ preference for quality, and purpose-built accommodation.