Data centers, holiday homes and more attract $867 mn from institutional investors in 2022: Colliers

• Institutional investments into alternate real estate assets grew four-fold as compared to 2019, says a report by Colliers.
  
  
• Most of the inflows went into data centers, which accounted for 52% of the total alternate asset investments.
  
  
• Institutional investors pumped in $4.9 billion into the real estate sector in 2022 and the office sector accounted for 41% of the inflows.

Institutional investments in alternate real estate assets have been rising in the last few years but in 2022, it hit a new high of $867 million, says a report by Colliers. Data centers, life sciences, senior and student housing, holiday homes and more such constitute alternate assets in the real estate market.

Even as inflows into these asset classes account for 18% of the total institutional investments in this vast sector, it grew by a massive 92% year-on-year. Moreover, as compared to 2019, it constituted a four-fold jump.

“The growth of alternate sectors is led by investors looking to diversify their portfolio, given steady returns in some traditional asset classes,” the Colliers report said.

Most of the inflows however went into data centers, which accounted for 52% of the total investments in alternate assets. This was followed by others such as life sciences, holiday homes, hospitals, etc. “However, the traction in investments was seen largely in data centers, with the other segments witnessing scattered deals,” the report added.

Investors buy into the back-to-the office theme

Across all asset classes, institutional investors pumped $4.9 billion into the real estate sector in 2022. Their favourite pick is office spaces which grew 50% year-on-year on account of large deals. In fact, the office sector with investments to the tune of $1.9 billion accounted for 41% of the total inflows in 2022.

“As investors eye building a portfolio that they can bundle up as real estate investment trusts (REIT), they continue to see resilience in greenfield and ready-to-move assets. Majority of the deals in the office sector were driven by global investors, who are looking at income-yielding assets,” the report said, adding that the gross yields for Grade A completed office assets stands at 8-9%.

However, institutional investments into the residential sector dropped 29% and this is the asset class with moderate gross yields to the tune of 2-2.5%, while investments in the industrial and warehousing sector declined 63%. Apart from alternate assets, retail and mixed-use assets exhibited massive growth.

Interest rates, recession may have a short-term impact

However, Colliers also believes that high interest rates coupled with high inflation, recessionary concerns and geopolitical tensions in some countries may dampen fund deployment on a short-term basis.

“The investments in Indian real estate have been consistent for the past few years and hence have the potential to grow due to the structural change in demand for capital. During 2023, while we may see some postponement in deployment, there is ample dry powder in the market across core assets and alternate assets,” said Piyush Gupta, MD, Capital Markets and Investment Services, Colliers India.

Gupta says that there is a strong performance in the residential, retail, and hospitality sectors, where 2022 witnessed some large transactions. “These sectors are likely to see more traction in the next couple of years. Performance credit, special situations, portfolio acquisitions, asset reconstruction, and related structures have been growing and are likely to attract more investments,” he adds.

Domestic investors turn active

While most of the institutional investment into real estate tends to come from global investors, domestic investors also turned active in the last year. While global investors are attracted by the stable demand dynamics and tend to participate in entity-led deals, residential assets accounted for a chunk of the domestic investments.

“The share of domestic investment inflows in 2022 has surpassed the share in 2021, accounting for 22% share in total inflows. Overall, though the total investment inflows are yet to outrun the pre-pandemic levels, investors remain vested in India’s real estate even in challenging times. Large global investors will continue to partner with domestic firms to set up investment platforms,” Vimal Nadar, senior director and head of research, Colliers India.

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