Institutional Investment Trends in Q3 2023: A Shift in Dynamics

The third quarter of 2023 witnessed notable changes in the landscape of institutional investments in the Indian real estate sector. Domestic investors emerged as the dominant players, accounting for a substantial portion of total institutional investments, while foreign investors’ contribution dwindled significantly, according to insights from Vestian, a firm specializing in occupier-focused workplace solutions.

Domestic vs. Foreign Investment Trends

During Q3 2023, domestic investors led the way, contributing 71% of the total institutional investments. In contrast, the share of foreign investors plummeted from 55% in Q3 2022 to 27% in Q3 2023. This shift highlights a noteworthy change in investment patterns within the sector.

The overall institutional inflow for the July-September period saw a considerable decline of 57% compared to the previous quarter, primarily attributed to a significant drop in foreign fund inflows.

Sector-specific Insights

Residential assets experienced a surge in institutional investments during Q3 2023, reaching $298.3 million, marking a substantial 71% increase compared to the previous year. Conversely, institutional investments in residential assets during the same period last year amounted to $174.3 million.

For the broader Indian real estate sector, the third quarter of 2023 witnessed a notable uptick in institutional investments, totaling $679.9 million, representing an impressive 82% growth compared to the corresponding period in the previous year.

Insights from Industry Experts

Shrinivas Rao, CEO of Vestian, noted that institutional investments slowed down during the September quarter, primarily due to limited interest from foreign investors amid a challenging global macroeconomic landscape. However, Rao highlighted the potential for increased demand for office spaces across the country as large conglomerates begin calling their employees back to the office.

Diversification in Asset Classes

The third quarter of 2023 saw shifts in institutional investments across various asset classes. While the residential sector remained a preferred choice, its share declined to 44% in Q3 2023 from 47% a year earlier. Conversely, the share of commercial assets, including office spaces, co-working facilities, retail properties, and hotels, decreased to 24% in Q3 2023 from 40% in Q3 2022.

Office assets attracted $164.1 million in institutional investments during the July-September period, marking an increase from the $150 million recorded in the same period the previous year. On the other hand, the industrial and warehousing sector witnessed a remarkable uptick, surging to 28% in Q3 2023 from negligible presence in Q3 2022.

Driving Factors

This growth in the industrial and warehousing sector can be attributed to the Government’s ‘Make in India’ campaign and the rising popularity of e-commerce, fueling heightened demand for industrial spaces and warehouses across the country. Consequently, significant interest from large investors has been drawn towards these segments, contributing to the evolving investment landscape in the Indian real estate sector.