Private Equity Landscape: 9M FY24 Analysis
- Decline of 26% in PE Investments: The latest FLUX report by ANAROCK Capital reveals a notable 26% decrease in private equity (PE) investments during the first three quarters of fiscal year 2024. Both foreign and domestic investors experienced reduced activity during this period.
- Global Uncertainties Impact Foreign Investor Activity: Foreign investor participation remained subdued for the majority of 9M FY24, primarily due to global geopolitical uncertainties and a challenging high-interest rate environment.
Insights from Shobhit Agarwal, MD & CEO – ANAROCK Capital
Shobhit Agarwal highlights the specific trends and factors influencing the PE investment landscape:
- Domestic AIFs and Residential Real Estate Debt: Domestic Alternative Investment Funds (AIFs) recorded lower activity levels, particularly in their favored asset class – residential real estate debt. This decline is attributed to decreased demand for high-cost funds.
- Impact of Strong Residential Pre-Sales: Robust residential pre-sales played a significant role in reducing the demand for capital from more expensive alternate investment funds (AIFs).
- State-Owned Banks’ Accommodative Stance: Shobhit Agarwal points out that an accommodative stance by state-owned banks further contributed to the decreased demand for capital from AIFs.
This comprehensive analysis provides insights into the challenges faced by both foreign and domestic investors in the evolving PE landscape, shedding light on the impact of global uncertainties and changing preferences within the real estate sector.
Top 10 PE Deals in 9M FY24
The share of the top 10 deals was 87% of the total value of PE investments in 9M FY24 as compared to 76% in 9M FY23.
Average Ticket Size
The average ticket size has marginally increased to USD 95 Mn in 9M FY24 from USD 91 Mn in 9M FY23. This is largely due to a large deal in which Brookfield India Real Estate Trust REIT and Singapore’s sovereign wealth fund GIC together acquired two commercial assets – one in Mumbai and the other in Gurugram, NCR, from Brookfield Asset Management with an enterprise value of USD 1.4 Bn.
Movement of Capital Inflow
Multi-city transactions increased sharply during 9M FY24, dominated by the Brookfield India REIT & GIC. MMR led the transaction league tables in city-specific transactions, with the region reporting investments of USD 694 Mn in 9M FY24, against USD 375 Mn in 9M FY23.
Equity vs Debt Funding
PE investors continue to prefer equity investments, which is visible from the fact that the PE share stood at a healthy at 84%.
Asset Class-wise Funding
The commercial real estate sector has seen an increased share in PE deals in 9M FY24, driven by a single large transaction and reduced activity in residential real estate.
Domestic vs Foreign Funding
“Investments by foreign investors have increased to 86% in 9M FY24 as compared to 79% in 9M FY23,” says Shobhit Agarwal. “Correspondingly, domestic investments decreased to 14% of the total capital inflows into Indian real estate in 9M FY24 – at USD 360 Mn, compared to USD 717 Mn in 9M FY23.
Residential Real Estate
- Despite Elevated Home Loan Rates: The residential real estate sector maintained a robust performance, indicating positive industry sentiment. A significant demand driver is rising rental values across various markets.
- Surge in Luxury and Premium Projects: Notable interest surge in luxury and premium residential projects as homebuyers aspire to transition to more spacious living in vibrant communities, moving away from standalone structures.
- Demographic Shift in Homebuyers: Evident demographic shift in homebuyers, with the age bracket dropping from 40+ to sub-40, impacting product design and the value offering of housing projects.
- Strong Demand Dynamics: Current demand dynamics suggest another strong performance in CY2024.
Office Real Estate
- Resilient Performance in Top 6 Cities: The commercial office space witnessed a robust performance in 9M FY24, particularly in the top 6 cities. The sector’s reliance on IT/ITeS has diminished, with manufacturing, BFSI, and coworking contributing to the resilient demand.
- Positive Rental Momentum: On a quarterly basis, the rental landscape displayed positive momentum, with most micro-markets experiencing increases of 0-5%. Bengaluru, Mumbai, and Chennai demonstrated stronger rental growth.
- Bengaluru Leading Pan India Supply: Bengaluru led Pan India supply during the quarter, with significant contributions from Hyderabad, Pune, and Chennai in the commercial office space.
Retail Real Estate
- Thriving Retail Subsegment: The retail subsegment of Indian real estate is thriving due to economic growth. Key players like DLF, Prestige, and Phoenix are aggressively pursuing expansion, aligning with the strategies of leading retailers.
- Rental Firming Up: Rentals are expected to firm up, as economic buoyancy and robust consumer sentiment have led to healthy demand and trading densities for retail assets.
- Resilient Warehousing Sector: The warehousing sector showed resilience with consistent uptake in 9M FY24, driven by increased demand due to government initiatives such as the PLI scheme and the global shift towards the China+1 policy.
- Regional Disparities in NCR: While MMR maintained balanced supply and demand, NCR saw higher vacancies as demand softened even as new supply hit the market. The industrial sector outpaced logistics in uptake during Q2 and Q3 FY’24.
- Tier II Cities and Institutional Interest: Tier II cities saw sustained institutional interest but lacked major product launches in the warehousing sector.
- Rental Dynamics and Yields: Rising construction and land acquisition costs caused an increase in rentals. Entry yields for greenfield projects range from 9-10% p.a., while capitalization rates for stabilized assets fall within 7.5-8.25% p.a.
This comprehensive overview provides key insights into the varied dynamics of the real estate market across residential, office, retail, and warehousing sectors, offering a detailed analysis of trends and performances in 9M FY24.
Credits : ANAROCK