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November 3, 2020

The world’s biggest real estate investors are further expanding in India, a sign that fast-growing cities and market reforms that benefit foreign investment are attracting attention.

Canadian firm Brookfield Asset Management is set to buy a number of office properties from Bengaluru-based RMZ Corp. for $2 billion, the country’s largest-ever commercial real estate deal. U.S. giant Blackstone is reportedly lined up to buy office, retail and hotel properties from Prestige Group.

The deals are in part a bet on long-term demographic and policy changes in India outlasting current global economic and geopolitical uncertainty, says Priyank Shah, Director, Capital Markets, Asia Pacific at JLL.

“India’s fastest growing cities have been drawing significant levels of interest from overseas investors,” Shah says. “These deals show that, for certain assets, demand remains strong despite global economic headwinds.”

Office properties in India aren’t new ground for Brookfield or Blackstone. Both have acquired office assets, especially in larger cities with big tech scenes.

In 2019, Blackstone’s Embassy Office Parks became India’s first real estate investment trust, and the private equity group this year launched Mindspace Business Parks, another REIT. Brookfield has filed with regulators to launch a REIT as well.

“It’s a real show of confidence in India’s office sector,” Shah says.

Long-term outlooks

Brookfield is acquiring 12.5 million square feet of offices in Bengaluru and Chennai.

While a big-ticket deal, the group is among other foreign investors increasingly looking to India’s favourable economy and demographics. Gross domestic product growth has averaged 6 percent to 8 percent over the past decade, and the nation has a young population with a rapidly growing middle class.

The favoured cities for international investment so far have been India’s capital, Delhi, the financial capital of Mumbai and IT stronghold Bengaluru, which together have accounted for two thirds of real estate investments over the past decade.

While the office market has been a focal point, logistics and warehouse spaces are also gaining traction. Part of this is due to the introduction of a national goods and services tax in 2017 that replaced a host of state taxes, which had made establishing national logistics networks difficult.

Since then, large firms like GLP, ESR and Logos have invested heavily in establishing India operations. For example, GLP joined forces with India’s largest logistics specialist Indospace alongside capital from Canadian group CPPIB.

“India’s logistics real estate sector is gaining favour due to e-commerce growth and changes in consumption habits,” says Shah. “While some might find it surprising to find big deals getting done in the middle of a pandemic, if you look around, it really shouldn’t be.”

Click to read more about how economic reforms and strong fundamentals are attracting global capital to India.

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Priyank Shah

Director, Capital Markets, Asia Pacific at JLL.

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