India’s Rise: What Is The Opportunity For Institutional Investors

In recent years India has been one of the fastest growing economies in the world and is well on their way to achieving their goal of becoming a $5-trillion economy by 2024.

Priyank Shah, Director, Capital Markets Asia Pacific, JLL

In recent years India has been one of the fastest growing economies in the world and is well on their way to achieving their goal of becoming a $5-trillion economy by 2024.

In 2014, India was 11th in global economy in terms of GDP. After 5 years, India is 7th today and India’s GDP has grown in the last five years from $2 trillion to $2.9 trillion. The driving forces of the country’s growth—including urbanization, a rising middle class, and increasing consumer spending—are attracting interest from investors.

Despite financial sector stress set to dampen growth in the short term, investors have cause to be optimistic in regards to long term opportunity. Past 5 years were detoxifying years for the Indian economy. The current government, in its second innings, has retained its focus on development and reforms despite the slowdown.

The last 4 years have seen a 2X rise in investor volumes. Indian real estate sector attracted approximately USD 30 bn institutional investments during 2009-2018 (until Oct’18), the decade post GFC. 2014 – 2018 witnessed a whopping 68% share of total institutional investments. A slew of reforms in various segments improved investors’ perception. Blackstone chairman Stephen Schwarzman explains plans to continue its position as an aggressive acquirer of local assets “We have done remarkably well as a firm since 2015… became the largest commercial landlord in India,” Schwarzman. “In the private equity area, we deployed around $5 billion. In total, we have deployed around $10 billion and it has worked out incredibly well.”

 

Notable investor trends include:

    1. Improved confidence of global investors is clearly evident with rising share of Sovereign Wealth Fund investments over the decade.

    2. Mumbai, NCR Delhi and Bengaluru attracted more than 2/3 investments over the decade (2009-2018).

    3. Non-IT Office Space investments witnessed substantial growth in the last three years.

    4. Commercial Office Space emerges as the most favourable investment asset class for institutional investors.

REITS and strong occupier demand will see increased investment in India’s office sector.

Real estate investment trusts, or REITs, are still new in India. India witnessed the successful launch of its first REIT, Embassy Office Parks – a joint venture of U.S. private equity firm Blackstone Group and India-based Embassy Group – launched in March this year and could pave the way for more. The largest REIT in Asia by square footage to date has been dubbed a success, as of December 2019 it was trading at INR 423 per share; 40% Premium over Face value (INR 300 per share).

This signals good news for the country’s office market, especially with the potential for further easing of REIT regulations. With an increasing number of REITs, the market will witness a strong focus on the development of quality offices that meet the aspirations of new age occupiers. As a result, the market will see more such supply in the coming quarters. Hence, there will be a change in the proportion of Grade A stock in the decentralized markets. This would result in the emergence of alternate Central Business Districts (CBDs) in and around cities. The Indian office segment has 302 mn sq.ft. of REIT worthy assets, with potential value at USD 38.6 Bn. Bengaluru leads in terms of REIT-able stock and value of the stock, followed by Mumbai.

Retail and ecommerce

Retailers in India are increasingly pushing outside the country’s capital cities in a hunt for new consumers. Real estate investors have noticed. Over the last three years, malls in India’s second-tier cities have attracted 58 percent of total retail investment. Jaipur, Lucknow, Kochi, Bhubaneswar, Nagpur have been among the biggest winners. The uptick in investment has followed a similar move from retailers, which are spreading their operations further afield from cities like Delhi and Mumbai, where they have traditionally focused their attention.

A recent report by JLL India shows that investment has been predominantly focused on superior quality malls in secondary cities that enjoy strong transport links, infrastructure and rising levels of disposable income, all of which are serving to attract interest from both foreign and domestic developers.

To stay ahead of the curve, India’s malls will have to adapt to the changing consumer landscape. A growing presence of online shopping platforms and aggregators have allowed vast parts of the country to access goods that might otherwise have been unavailable.

Logistics and Industrial

The logistics sector is growing in India, driven by the boom in ecommerce and third-party logistics operators. Investors are now attracted to the logistics sector given this strong occupier demand, and higher yields relative to other forms of traditional real estate. Absorption clocked an unprecedented growth of 63% y-o-y growth to 31.8 mn sq ft last year from 19.7 mn sq ft. in 2017. The robust growth in absorption reflects demand outstripping supply and vacancies dropping below 10% level for the first time ever. 60% of the demand / absorption coming from 4 types of Occupiers i.e. 3PL, Retail and Auto ancillary.

Considering the demographic dividend and underlying fundamentals of the economy India is certainly a market catching the attention of global institutional investors.

About the author

Priyank Shah

Director, Capital Markets Asia Pacific

JLL

Priyank Shah is a part of the Senior Leadership team of JLL Capital Markets covering Asia Pacific region. In his current role, Priyank is directly responsible for cross-border investment transactions for the capital markets business of JLL Asia Pacific.

Priyank currently is a part of the Asia Pacific team and has relationships both at private and institutional investors globally. The Capital Markets business advises & structures real estate investment transactions on behalf of real estate funds, developers and global financial investors. These include investments in core assets, development projects, restructuring corporate real estate portfolios and secondary trades.

Priyank has been with Jones Lang LaSalle since 2011, with varied responsibility for the Markets business (commercial assets leasing and sales) and for the Capital Markets business. He has over ten years of experience in the commercial real estate and real estate financing business. 

Over the past 10 years, he has worked with several large real estate developers, corporate occupiers, investors and funds advising them on sales, strategic planning & investment strategies. He covers pricing, sales strategy, lease structuring advisory, structuring joint ventures, equity raising and advising on disposals and acquisitions in core markets. He has dealt with the multiple global institutional investors such as Ascendas, Blackstone, Brookfield, GIC, CPPIB, Tata Realty and Infrastructure, Tishman Speyer, and Starwood Capital. 

He has been instrumental in some of the largest core asset trades in India such as FIFC, Waverock, Express Trade Tower and SP Infocity. Earlier in his career, Priyank also worked in the office transactions (project marketing) and investment sales business within JLL where he structured transactions for some of the large developers and occupiers in the country. He is currently the country head for India on the young professionals group for ANREV (Asian association for Investors in Non-listed Real Estate Vehicles)

Prior to his exposure in real estate he has been a derivatives dealer on the swaps desk at Tullet Prebon (Prebon Yame India) where he managed the interest derivatives desk (overnight index swaps desk and currency forward swaps) within the interbank market on the OTC-interbank market for overnight index swaps and currency forwards.

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