2023 has seen several fluctuations in private equity inflows in real estate and we are all aware that there has been a 44% dip in PE investments over 2022. There have been multiple reasons that curbed these investments, be it geopolitical uncertainties, inflation, rate hikes leading to higher interest rates to name a few. While the Western countries (US and Canada) took a backseat this year, we saw Asian players (Singapore and Japan) leading it especially in the office space, followed by warehousing and residential, while retail had a huge slump.
The first half of the year witnessed a major transaction with Brookfield India REIT; however, the latter part of the year experienced a dip. Residential got good attention but mostly in under-construction projects.
Now rather than looking at the rear-view mirror, let’s focus on the road ahead. Do we see more bumps and turns…we shall find out but here are my predictions.
If we look at 2024, I don’t think interest rates are going to reduce, and there will be other economic and regulatory challenges in future as well; but this slowdown in investment should be a big indicator for real estate players to reassess their strategies and adapt to the changing or I would say evolving market conditions.
I believe we will continue to see more Asian institutional investors investing in certain segments of real estate which they believe will have more resilience and growth potential, probably office, logistics, industrial, warehousing and data centers, senior and student housing, which may give more stable returns.
Affordable Housing may continue to be of interest given the government initiatives and funds like SWAMIH. There is a growing trend of PE firms focusing on distressed assets, redevelopment projects, brownfield projects, land investments as they would reap higher returns and benefits.
Another important aspect which may influence investment and gain prominence is the high focus on ESG (Environmental, Social & Governance) and Technology (Proptech and Data Analytics). The recent nod to MSM REITs by SEBI could be another gamechanger.
2024 is going to be a wait and watch approach and I am quite optimistic that investment will pick up more in the second half of the year and will most likely exceed the 2023 target of $5.6 billion.
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