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Institutional fund flow into commercial realty likely to surge four-fold this year

The investors are cognizant about the cyclical nature of real estate, and any change in growth cycle offers investment opportunities to capitalise.

ET Bureau|
Last Updated: May 05, 2017, 01.11 AM IST|Original: May 05, 2017, 01.07 AM IST
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Next two years are also likely to witness a steady stream of investments into the office sector as Real Estate Investment Trusts become a reality.
Next two years are also likely to witness a steady stream of investments into the office sector as Real Estate Investment Trusts become a reality.
BENGALURU | MUMBAI: Divestment by large developers is estimated to drive four-fold rise in institutional funds inflow into India’s commercial real estate this year to $3.5 billion, a new peak for these investments, said an RICS-Cushman & Wakefield report.

Next two years are also likely to witness a steady stream of investments into the office sector as Real Estate Investment Trusts become a reality. A lot of institutional capital is chasing the limited investible grade office stock of 280 million sq ft across top 8 property markets.

Interest from institutional investors is likely to percolate into retail investors once REITS are launched and show some traction. The first Real Estate Investment Trust listing anticipated this year, is expected to pave the path for institutionalisation of the sector. This investment instrument is expected to open the sector to domestic savings in an organised and protected manner, bringing in globallyaccepted funding platform, besides strengthening investor interests.

On the other hand, it will also help developers unlock value of their assets and raise capital to improve liquidity. “Overall, while there will be certain short-term headwinds emanating from global policies, India is relatively well-insulated. India is firmly on track to become an economic powerhouse with strengthening GDP, better business environment and investor-friendly policies by the government,” said Anshul Jain, MD, India, Cushman & Wakefield.

Over the past few years, privateequity funds have been quite active in chasing leased assets. Last year, for instance, investments into commercial assets were noted at $957 million, a 6% increase from the previous year, the report added. “The biggest change in the sector will be brought about by its institutionalisation.

As institutional investors gain ownership in commercial office assets, better corporate governance and best professional practices are slowly being adopted by the commercial real estate sector,” said Sachin Sandhir, Global MD-Emerging Business, RICS.

Change in ownership patterns is expected to bring in the much needed governance into the real estate sector. Over the years, as institutional investors become more active in commercial real estate and the ownership pattern of commercial office assets has seen a marked shift.

The investment scenario is now marked by a blend of sovereign and pension funds with a long-term investment focus, along with private equity funds that have a typical 7-8 years investment horizon. Several pension and sovereign funds are racing for aggregating commercial assets in prime properties.

These funds have a long-term vision in India with a much higher average holding period of 15-20 years. The investors are cognizant about the cyclical nature of real estate, and any change in growth cycle offers investment opportunities to capitalise.
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