PE investment in real estate reach $3241 million in Q1 2021: Knight Frank

In the first quarter of 2021, the investment in the real estate sector has grown by 16 times compared to USD 199 million in Q1 2020.

Knight Frank India, a leading property consultancy, in its latest research report, ‘Investments in Real Estate – Trends in PE Investment (Q1 2021 update),’ recorded that Indian real estate attracted private equity (debt + equity) investments of USD 3,241 million across 19 deals in Q1 2021 (January – March) period. In the first quarter of 2021, the investment in the sector has grown by 16 times compared to USD 199 million in Q1 2020.

The investments in Q1 2021 in value terms were ~80% of that witnessed in full year 2020 and ~48% of full year 2019. The strong momentum in Q1 2021 was predominantly driven by two major factors: a spill over of certain deals from 2020 and the rise in investor confidence due to the drop in COVID-19 infections during early parts of Q1 2021, which had created some ripples of positivity in the economy. The sustainability of this momentum in investors’ sentiments will therefore depend on how soon the second wave of infection subsides and also the pace of vaccination. Of the total PE investments in real estate, the office segment attracted 71% share, followed by retail at 15%, residential and warehousing with 7% each respectively.

Real Estate Asset Class PE Investments in DEBT AND EQUITY

($ mn)

Number of Private Equity Deals
  2020 Q1 2020 Q1 2021 2020 Q1 2020 Q1 2021
Residential 368 0 234 7 0 7
Overall 4,068 199 3,241 21 4 19

Real Estate Asset Class PE Investments in EQUITY

($ mn)

Number of Private Equity Deals
  2020 Q1 2020 Q1 2021 2020 Q1 2020 Q1 2021
Office 2,509 141 2,148 7 2 6
Retail 220 0 484 2 0 1
Warehousing 971 58 216 5 2 4

Source: Knight Frank Research

Explaining the investment trend in the real estate industry, Shishir Baijal, Chairman and Managing Director, Knight Frank India said “The deal street market of Indian real estate witnessed an impressive surge in both value and volume of private equity investments in the first quarter of 2021, when compared to the entire year of 2020. Office assets continue to be the preferred segment attracting over 70% of PE investments Q1 2021 as the segment moves towards maturity which includes sustained demand, stability in rental income and change in ownership profile over long -term. Investors are expecting demand to recuperate faster as the pace of vaccination increases.”

Shishir further added, “While Q1 2021 has been an encouraging quarter for PE investments, however, the upward trajectory can be impacted by the rising second wave of COVID-19 infections in India which started in the month of April 2021. The sustainability of revival in investor sentiments will therefore depend on how soon the second wave of infection subsides and the pace of vaccination.”

Trends in PE Investments (equity only) in Office Assets

The office market remained the preferred segment for investors due to the strong fundamentals (availability of large English speaking STEM talent, relatively low rentals, established knowledge outsourcing ecosystem) of the Indian office market. Since 2011, the segment has garnered USD 18,361 million of equity investments. In Q1 2021, the segment transacted seven deals amounting to USD 2,148 million. Around 31.5 million sq ft of the office assets were transacted in Q1 2021.

25% of the PE (equity) investments in office segments since 2011 have pumped into new development and under-construction projects. The primary reason for this is the paucity of mature transactable assets in the Indian office market. In the latest period – Q1 2021, the trend accentuated further, with 55% of PE investments in new development and under-construction projects. In 2016, ~86% of the investments were into ready assets and only ~14% were into new development and under-construction projects.

In terms of investor origin split for investments in Q1 2021, Canada led the chart with USD 915 million, followed by United States of America with USD 830 million, Singapore with USD 341 million and India with USD 62 million.

In Q1 2021, Bengaluru took the largest quantum of office investment (equity) worth USD 1,528 million with three deals, followed by Chennai – Hyderabad worth USD 415 million in a single deal involving assets across the 2 cities, Hyderabad also has USD 143 million from another deal and National Capital Region (NCR) with USD 62 million from one deal.

Area transacted in Q1 2021

City Office Area (sq ft)
Bengaluru 1,74,50,000
Chennai, Hyderabad* 1,20,00,000
Hyderabad 18,00,000
NCR 2,59,000
Grand Total 3,15,09,000

Investor origin in Q1 2021

Office Amount (USD mn)
Canada 915
US 830
Singapore 341
India 62
Grand Total 2,148

Source: Knight Frank Research

City wise investments: Equity investment since 2011 – Q1 2021

City Amount invested (USD mn)

Jan 2011 – March 2021

Number of deals

Jan 2011 – March 2021

Mumbai 5,288 22
NCR 3,368 14
Hyderabad 2,866 16
Bengaluru 2,303 13
Bengaluru, Chennai, NCR* 2,000 1
Chennai 1,118 9
Pune 936 10
Chennai, Hyderabad* 415 1
Others 67 1
Grand Total 18,361 87

Source: Knight Frank Research | Note – * represents multi-city investments as a part of a single deal

Trends in PE (Equity Only) Investments in Retail Assets

In Q1 2021, retail assets recorded PE investments of USD 484 million, up 120% from USD 220 million in Q1 2020. However, this jump can be attributed to a single large deal (equity) in Bengaluru between Blackstone and Prestige that involved multiple retail, office and hospitality assets as a part of the larger transaction. Since 2011, with 26 deals, the retail space has attracted USD 3,276 million equity investments. The retail sector has been the worst affected segment in this COVID-19 crisis. The pandemic induced lockdown had forced several malls to shut down, affecting their business adversely temporarily. From 2011 to date, around 34.4 million sq ft of the retail space have been transacted in India, and global investors are seen to be bullish on investing in ready and new development projects.

Investor origin Amount invested (USD mn)

Jan 2011 – March 2021

Amount invested (USD mn)

Jan 2011 – March 2021

US 1,465 11
Singapore 1,122 7
India 439 7
Canada 250 1
Grand Total 3,276 26

Source- Knight Frank Research | Note: Grand total represents investments since 2011

Trends in PE (Debt + Equity) Investments in Residential Assets

In Q1 2021, the residential sector witnessed seven deals worth USD 234 million, which was 64% of the total investments that was witnessed during the entire 2020 and 38% of that in 2019. In volume terms (number of deals), the investment activity touched 100% of 2020 levels and 39% of 2019 levels. With government interventions and other measures, post the lockdown was lifted between Q2 and Q3 2020, All-India residential sales grew by 5% YoY in Q4 2020 and by 44% YoY in Q1 2021.

In Q1 2021, Mumbai took the largest quantum of residential investment (equity + debt) worth USD 144 million, followed by the NCR with USD 55 million and Chennai by USD 24 million.

Q1 2021 Residential (Debt + Equity)

Amount (USD Mn)

Number of deals
Mumbai 144 3
NCR 55 1
Chennai 24 1
Hyderabad 11 2
Grand Total 234 7

Source: Knight Frank Research

The investors’ preference which had moved from equity to debt in the last decade, has again tilted strongly in favour of equity in 2020 and Q1 2021, indicating a resurgence in risk appetite while participating in the next residential business cycle (refer chart below). However, the trajectory of infection rate and severity of the current spate of lockdowns will determine the direction going forward.

Source: Knight Frank Research

Trends in PE (Equity Only) investments in Warehousing assets

In Q1 2021, the warehousing sector attracted PE investments worth USD 216 million which was higher by 272% YoY going up from USD 58 million during the same period last year. Globally, investors expect the warehousing segments to emerge stronger from the crisis, driven primarily by the renewed growth potential of e-commerce segment, which would lead to further demand for warehousing spaces. A significant chunk of consumer spending is expected to shift online due to restrained consumer mobility and repeated lockdowns.

In Q1 2021, the warehousing segment witnessed investments worth USD 216 million across 4 deals. In terms of investor’s origin in Q1 2021, Singapore has the largest share of investment of around USD 92 million, followed by India with USD 69 million and the UK with USD 55 million.

Investor origin in Q1 2021

Warehousing Amount (USD mn)
Singapore 92
India 69
UK 55
Grand Total 216

Source: Knight Frank Research

Rajani Sinha, Chief Economist and National Director – Research, Knight Frank India said “The jump in PE inflow into real estate in Q1 2021, has been a sigh of relief for the sector. The outlook for the sector had been improving with improvement in the pandemic situation in India towards the beginning of 2021. The spill over of certain deals from 2020 also helped push up the capital inflows in Q1 2021. However, with severe second wave of COVID infection in India, we will have to be cautiously watchful of the PE inflows trajectory for the next few months.”