Private equity investment in real estate: Investors turned cautious amid geopolitical and inflationary concerns

Private equity investment in real estate fell 17 per cent this year to USD 5.13 billion as investors turned cautious amid geopolitical and inflationary concerns, according to Knight Frank India.

Private equity (PE) investment, in both pure equity and debt form, declined in housing, office and retail segments during 2022, whereas it increased in warehousing assets when compared with last year.

As per the Knight Frank data, PE investment in warehousing increased 45 per cent to USD 1,907 million this year from USD 1,313 million last year.

In office assets, PE investment dipped 19 per cent to USD 2,331 million this year from USD 2,882 million in 2021.

PE inflows were down 50 per cent in the housing segment to USD 594 million in 2022 from USD 1,187 million last year.

In retail assets as well, PE investment declined 63 per cent to USD 303 million this year from USD 817 million in 2021.

Overall, PE investment has fallen to USD 5,134 million (USD 5.13 billion) this year from USD 6,199 million (USD 6.2 billion) in 2021.

Knight Frank India Chairman and Managing Director Shishir Baijal said, ?The investment climate in India, moderated in 2022 as investors grew more cautious in response to escalating international tensions and concerns about rising inflation and interest rates."

Despite these concerns, he said the Indian real estate provided avenue for both domestic and global investors. 

Baijal noted that the office segment remained the most popular investment category with an inflow of USD 2.33 billion this year.

"The warehousing segment continued to observe rise in interest amongst PE investors supported by the strong demand from manufacturing, e-commerce, and third-party logistics occupiers," he said.

On the outlook for next year, Baijal expects that inflation for most of the nations and the pace of rate hikes will moderate.

"With investors paying attention to the economy, governmental and regulatory framework, business results, and valuations, investments in India are expected to improve," he said.

Knight Frank further highlighted that the Indian real estate sector has attracted PE investment worth USD 54.8 billion through 659 deals from 2011 to 2022.

Apart from the slump in PE inflow during 2020 because of the pandemic, PE investments in the Indian real estate remained strong in the last decade, with average investment of USD 4.6 billion per year from 2011 to 2022.

Across top eight markets in India, Mumbai received the highest PE investments, accounting for 41 per cent of the total inflow, followed by Delhi-NCR with 15 per cent share and Bengaluru with 14 per cent share during this year.