Private Equity Investments in Indian Real Estate Decline by 4% in H1 FY25, Driven by Reduced Office Sector Activity

Mumbai / October 15, 2024 – Private equity (PE) investments in Indian real estate witnessed a 4% decline in the first half of FY25, with a drop in both deal volume and value, primarily due to reduced investment in the office sector. The number of deals fell from 24 in H1 FY24 to 17 in H1 FY25.

According to Shobhit Agarwal, Managing Director and CEO of ANAROCK Capital, “Private equity investments in offices are primarily driven by foreign investors, which have tapered down due to global factors such as geopolitical tensions and elevated interest rates. However, the aggregate numbers and the dominance of foreign investors in Indian real estate remained largely stable due to the ADIA/KKR investment in the Reliance Retail warehousing assets.”

This single transaction accounted for 67% of total investments in H1 FY25.

The average PE deal size rose by 23% year-on-year, primarily due to the Reliance-ADIA/KKR deal, which significantly increased the average ticket size from $104 million in H1 FY24 to $128 million in H1 FY25.

The industrial and logistics sector captured 67% of total PE investments, a 378% increase compared to the previous year. In contrast, the office sector’s share plummeted from 73% in H1 FY24 to just 17% in H1 FY25. The residential sector also saw an increase, rising from 8% to 17% year-on-year.

Apart from the Reliance-ADIA/KKR deal, other significant transactions included GIC and Xander’s $258 million investment in Hyderabad’s SPRE Fund II, and Capitaland India Trust’s $85 million equity deal with Aurum Ventures in the Mumbai Metropolitan Region (MMR).

Hyderabad emerged as a key investment destination, attracting $284 million in city-specific deals, while Mumbai’s share of investments dropped from 23% in H1 FY24 to just 9% in H1 FY25. Portfolio deals across multiple cities accounted for 67% of total investments.

The first half of FY25 saw a shift in the funding mix, with 66% of investments coming through a combination of debt and equity, largely driven by the Reliance-ADIA/KKR hybrid deal. Pure equity and debt transactions declined during this period.

Despite the overall decline in PE investments, the logistics and warehousing sector continues to attract strong interest due to growth in manufacturing, e-commerce, and 3PL services. In contrast, the office sector’s performance is being hampered by global economic conditions, though easing interest rates may revive investor interest in the near future. Residential real estate is also seeing increased PE activity, although pre-sales growth and rising construction finance from public sector banks may limit demand for high-cost private equity in the coming months.