Institutional investment in the office real estate sector increases 2.5 times to reach $2.7 billion

• The office sector accounted for the largest share of investment inflows at 74%, with the residential sector following at a distant 12% share.
  
• Despite a weak global economy, institutional investment inflows already amount to approximately 75% of the total inflows seen in 2022.
  
• Currently, only 11% of the Grade A office stock in the top six cities is listed as REITs, indicating that there is an untapped potential of an additional 57%.
  

During the first half of 2023, institutional investment in the office sector increased by 2.5 times year-on-year (Y-o-Y), reaching $2.7 billion. This indicates that investors continue to have confidence in the sector's potential for growth and returns.

The office sector accounted for the largest share of investment inflows at 74%, with the residential sector following at a distant 12% share. Inflows of institutional investments in the Indian real estate market rose by 43% Y-o-Y to $3.7 billion, according to a report by Colliers, a real estate services firm.

Despite a weak global economy, institutional investment inflows already amount to approximately 75% of the total inflows seen in 2022. The strong outlook for the domestic economy supports the positive fundamentals of real estate asset classes, including office and residential properties. Institutional investors are particularly interested in the office sector due to increased opportunities, strong demand, and promising growth prospects over the next 2-3 years.

Over the past five years, foreign investments in the office sector have been bolstered by several factors including higher demand for Grade A office space, a robust supply pipeline, improved transparency, and the availability of exit avenues such as Real Estate Investment Trusts (REITs). In the first half of 2023, foreign investments in office assets amounted to $1.9 billion, representing 71% of the total investments in the sector. Global investors continue to view the Indian office sector favorably and have shown a growing interest in high-quality Grade A office properties that generate stable income.

While many prominent office projects are already backed by top institutional investors, there is a healthy supply pipeline of over 150 million square feet under development across the six major cities, offering new investment opportunities over the next three years.

Investors in this spectrum are forming large Joint Venture (JV) platforms to deploy funds and capitalise on the expanding opportunities in upcoming office projects.

Says Piyush Gupta, Managing Director, Capital Markets & Investment Services at Colliers India, "Office sector is witnessing a recalibration globally, and hence the decision to invest is also taking longer. Further, interest rates and inflationary pressures are also temporarily keeping the investors in wait-and-watch mode as the investors reprice the global macro risks. The appetite to invest remains strong with newer funds looking to enter the Indian market."

Investments inflows ($ mn)

Asset Class	Q2 2022	Q2 2023	Q2 2023 vs Q2 2022 (% Change)	H1 2022	H1 2023	H1 2023 vs H1 2022 (% Change)
Office	464.9	1,811.6	290%	1,108.5	2,719.2	145%
Residential	72.9	72.3	-1%	89.4	433.4	385%
Alternate assets*	359.0	-	-100%	398.8	158.2	-60%
Industrial & Warehousing	-	133.9	-	179.8	350.2	95%
Mixed use	230.7	-	-100%	308.0	15.1	-95%
Retail	234.8	-	-100%	491.8	0.0	-100%
Total	1,362.3	2,017.8	48%	2,576.3	3,676.1	43%

*Note: Alternate assets include data centers, life sciences, senior housing, holiday homes, student housing, etc.

Source: Colliers

REITS on a high

The introduction of Real Estate Investment Trusts (REITs) has brought a sense of corporatisation to the Indian office market, and favorable regulatory reforms have attracted increased investments to the sector. Currently, only 11% of the Grade A office stock in the top six cities is listed as REITs, indicating that there is an untapped potential of an additional 57%.


With the current rate of investments in the sector, there is an opportunity to unlock this potential and move closer to our counterparts in the Asia-Pacific (APAC) region. The implementation of REITs and the realisation of their full potential can contribute to the further growth and development of the Indian office market.