PE inflows by US firms to decline in 2020: Anarock Capital

Anil Urs Bengaluru | Updated on April 06, 2020

With the United States (US) becoming the new epicentre of Covid-19 and witnessing one of its worst economic blows, the repercussions will soon impact India, as well.

“As things stand now, US private equity (PE) funds which have been substantially active in Indian real estate since 2015 may reconsider their India investment plans, leading to a decline in total inflows in 2020,” said Shobhit Agarwal, MD & CEO – Anarock Capital.

“However, some of the cash-rich funds could also leverage the Covid-19 fallout to optimal advantage. As and when they enter Indian shores (hopefully towards second-half of 2020), they will scout for good bargains and value-pick options on their own terms. Indian developers may see reduced valuations,” he added.

In retrospect, US-based PE players pumped nearly $5.7 billion into Indian real estate between 2015 and 2019, accounting for a nearly 29 per cent overall share. On a year-on-year (y-o-y) basis, PE inflows by US firms increased from a mere $526 million in 2016 to over $1.8 billion in 2019. Concurrently, their share has also increased — from 21 per cent to 36 per cent during the same period.

Other prominent PE players investing in Indian real estate are based out of Singapore, Canada, and UAE, among others.

According to Agarwal, “India has been a major draw for US-based private equity players over the last few years. In 2019 alone, US-based firms comprised 36 per cent share and pumped in approximately $1.8 billion out of the total $5-billion PE inflows in Indian realty. However, considering the rising pandemic fallout in the US, there is high possibility that inflows will drop significantly in 2020, thus impacting overall inflows into the country.”

Segment-wise inflows

Notably, a major chunk of the US-based private equity inflows in India since 2015 focused on the lucrative commercial real estate segment, with Blackstone as the top investor.

Of the total $5.7-billion pumped in between 2015 and 2019, close to $3.5 billion (61 per cent) targeted commercial real estate. The retail real estate segment came next, attracting nearly $1 billion.

Residential real estate drew close to $500 million, and over $400 million targeted mixed-use developments. More than $300 million were pumped into the logistics and warehousing sectors.

“Current estimates of the Covid-19 impact on Indian commercial real estate indicate net office space absorption across the top seven cities will plummet by 13-30 per cent in 2020 against preceding year,” explained Agarwal. He further added, “This is because most multi-nationals and domestic businesses will re-strategise their expansion plans and optimise operational costs in the wake of the Covid-19 pandemic. All these factors will inevitably impact the Indian investment plans of US private equity majors as well.”

Published on April 06, 2020

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