Institutional investment in the office real estate sector rises 2.5 times to reach $2.7 billion

In the first half of 2023, institutional investment in the office sector expanded by 2.5 times year-on-year (Y-o-Y), achieving $2.7 billion. This indicates that investors continue to have confidence in the sector's potential for expansion and returns. The office sector accounted for the largest share of investment inflows at 74%, with the residential sector following at a distant 12% share. Inflows of institutional investments in the Indian real estate market increased by 43% Y-o-Y to $3.7 billion.

Despite a weak global economy, institutional investment inflows already amount to approximately 75% of the total inflows seen in 2022. The strong outlook for the domestic economy supports the positive fundamentals of real estate asset classes, including office and residential properties.

Institutional investors are particularly interested in the office sector due to increased opportunities, strong demand, and promising growth prospects over the next 2-3 years.

Over the past five years, foreign investments in the office sector have been bolstered by several factors, including higher demand for Grade A office space, a robust supply pipeline, improved transparency, and the availability of exit avenues such as Real Estate Investment Trusts (REITs). In the first half of 2023, foreign investments in office assets amounted to $1.9 billion, representing 71% of the total investments in the sector. Global investors continue to view the Indian office sector favorably and have shown a growing interest in high-quality Grade A office properties that generate stable income.

While many prominent office projects are already backed by top institutional investors, there is a healthy supply pipeline of over 150 million square feet under development across the six major cities, offering new investment opportunities over the next three years. Investors in this spectrum are forming large Joint Venture (JV) platforms to deploy funds and capitalize on the expanding opportunities in upcoming office projects.

Says Piyush Gupta, Managing Director, Capital Markets & Investment Services at India, "Office sector is witnessing a recalibration globally, and hence the decision to invest is also taking longer. Further, interest rates and inflationary pressures are also temporarily keeping the investors in wait-and-watch mode as the investors reprice the global macro risks. The appetite to invest remains strong with newer funds looking to enter the Indian market."