PE inflows into office assets projected to jump 4-fold to Rs24,000 crore in 2017: report

With investors' interest in leased office assets remaining high, private equity inflows into commercial office assets are projected to see a four-fold rise to Rs24,000 crore ($3.5 billion) in 2017.

The year 2017 is likely to herald a new peak (overtaking 2014) for inflows into commercial office assets, aided by a few large office deals that are currently underway, as per a report by real estate consultancy Cushman & Wakefield.

"Large project-level stake sales by developers such as DLF from Gurgaon, and Hiranandani and K. Raheja Corp from Mumbai will propel the overall inflows into the commercial office sector,"  says the report.

The next two years are likely to witness continued momentum of investments into the office sector as new investment-grade projects come into supply.

Buoyed by stability in the commercial office sector and the potential to list under Real Estate Investment Trusts (REITs), investors have been keen to plough in funds in leased office assets.

''The recent efforts by the government to regulate the sector have been viewed favourably by investors. Moreover, the commercial office sector has been witnessing sustained high demand and investors are enthused by the opportunity in this space, led by impending REITs,'' said Anshul Jain, managing director, India, Cushman & Wakefield.

''Despite global economic concerns, lower GDP growth projection due to demonetisation, and slower revenue growth forecasted in the IT-BPM sector, the office sector is seeing stable growth with adequate pre-commitments in key growth markets such as Bengaluru, Hyderabad and Noida. Besides the commercial office sector, we will also see investors' appetite for retail assets increasing over the next few years,'' he added.

Reversing the general trend of residential investment surpassing commercial office sector inflows, the year 2017 will see inflows into the residential sector at Rs11,600 crore ($1.7 billion), roughly half of the inflows that are expected in the commercial office sector.

The expected total inflow this year into residential assets, therefore, is projected to be 44 per cent lower than that of 2016.

The momentum in the residential segment is expected to be slower as investors adopt a cautious stance towards the segment in light of the continuing subdued housing demand.

Developers are taking up fewer new projects as they remain stressed by slower sales and changing regulations that will be brought in through setting up of the impending Real Estate Regulatory Authority (RERA) in each state this year.

PE real estate inflows in 2016 were seen at their highest in nine years at Rs 39,900 crore ($5.97 billion), from) registering a 26 per cent increase from Rs 31,670 crore ($4.8 billion) in 2015.