Private Equity Investment in Indian Real Estate Surges: A Deep Dive into Sectoral Trends and Future Prospects

A Year of Resurgence: Private Equity in Indian Real Estate

Private equity (PE) investments in India’s real estate sector have seen a resurgence in FY 2024-25, climbing by 6% to $2.82 billion during the first nine months (April–December). This growth is a testament to the sector's resilience and adaptability in the face of global economic challenges.

According to a report by ANAROCK Capital, the average deal size during this period witnessed a remarkable 32.5% increase, rising from $88.5 million in FY 2023-24 to $117.3 million in FY 2024-25.

Shobhit Agarwal, MD & CEO of ANAROCK Capital, emphasized, “This jump underscores the impact of large-scale transactions on the market, with the top 10 deals comprising 93% of total PE transactions.”

City-Wise Distribution: Bengaluru and Hyderabad Take the Lead

While multi-city deals dominated the landscape, individual cities like Bengaluru and Hyderabad emerged as clear winners:

• Bengaluru accounted for 11% of total deal value.

• Hyderabad contributed 10%, reflecting its growing prominence as a real estate hub.

This city-specific growth aligns with strong IT sector performance and expanding infrastructure in these metropolitan areas.

Sectoral Insights: Industrial & Logistics Dominate

A sectoral breakdown reveals the dominance of the industrial and logistics sector, which captured 62% of total investments, dwarfing contributions from office (14%) and residential (15%) segments.

Factors Driving Industrial & Logistics Investments:

1. Manufacturing Expansion: Fueled by government initiatives like "Make in India."

2. E-commerce Growth: The demand for warehouses and third-party logistics (3PL) services has soared.

3. Focus on ESG: Investors are increasingly targeting Grade-A properties, which align with sustainability goals.

This shift from Grade-B to Grade-A properties underscores the market's growing preference for quality and large-format developments.

Residential Sector Gains Momentum

The residential sector's share in PE investments rose to 15%, up from 12% in the same period last year. This increase signals renewed activity in housing markets, driven by:

• Stronger Pre-Sales: Developers are achieving higher pre-sales figures.

• PSU Bank Involvement: Greater participation in construction financing has reduced dependence on high-cost private equity funds.

However, experts suggest that PE funds may need to adapt by:

1. Engaging in earlier stages of project lifecycles to maintain internal rate of returns (IRRs).

2. Exploring special situations investments to diversify their portfolio.

Challenges for Commercial Real Estate

The commercial real estate segment, despite strong leasing activity, witnessed muted PE participation. Key challenges include:

• Geopolitical Concerns: Ongoing global uncertainties impacting investment flows.

• High Interest Rates: Elevated borrowing costs have led to valuation pressures.

That said, the sector's operational performance remains robust, and a potential decline in interest rates could revive PE interest in the near future.

A Closer Look at Warehousing Investments

Warehousing continues to be a cornerstone of industrial and logistics investments.

Key Drivers:

1. Institutional Investor Confidence: Supported by a steady supply of investment-grade properties.

2. E-Commerce and Consumer Demand: Fueling the need for modern, efficient storage solutions.

3. High-Net-Worth Individual Participation: Increasing interest in this asset class for diversification.

Future Outlook: Opportunities and Growth Drivers

The report highlights several trends that will shape the future of private equity in Indian real estate:

1. Rising Demand for Sustainable Properties

Environmental, social, and governance (ESG) considerations are becoming a priority for investors. The focus is on properties that meet global sustainability standards, which is evident in the shift to Grade-A developments.

2. Infrastructure-Led Growth

Cities with strong infrastructure pipelines, such as Bengaluru, Hyderabad, and Pune, will continue to attract PE investments.

3. Sectoral Diversification

While industrial and logistics dominate, rising demand in residential and a rebound in commercial sectors could lead to a more balanced investment mix.

4. Policy Support

Government initiatives like REITs and the PLI scheme will likely boost transparency and investment attractiveness.

A Market Poised for Transformation

The Indian real estate market is undergoing a significant transformation, driven by increasing private equity investments and a shift towards quality and sustainability. The 6% growth in PE investments during the first nine months of FY 2024-25 reflects confidence in the sector’s resilience and potential.

As industrial and logistics continue to dominate, emerging opportunities in residential and commercial real estate offer avenues for growth. With the right mix of policy support, investor confidence, and adaptive strategies, Indian real estate is poised to remain a hotspot for private equity investments in the coming years.

For investors, understanding sectoral trends and aligning strategies with emerging market dynamics will be key to capitalizing on this evolving landscape.