Private equity investments in real estate declined by 4% in the first half of FY25, largely due to reduced investments in the office sector, according to Anarock. The total number of deals also fell from 24 in H1 FY24 to 17 in H1 FY25.

Shobhit Agarwal, MD and CEO of Anarock Capital, noted that foreign investors primarily drive office investments, which have decreased due to global challenges like geopolitical tensions and rising interest rates. However, the overall stability of foreign investment in Indian real estate was supported by significant investments, such as the ADIA/KKR deal in Reliance Retail warehousing assets.

The average deal size increased by 23% year-on-year, largely influenced by the Reliance-ADIA/KKR warehousing deal, which accounted for 67% of total investments in H1 FY25. The decrease in deal numbers contributed to a rise in average ticket size. Residential real estate comprised 15% of transactions among the top 10 private equity deals, up from about 4% in the previous year.

Domestic and foreign investors maintained similar funding proportions as in the first half of the prior year, showcasing the continued dominance of foreign investments in the sector. The industrial and logistics sector attracted 67% of total investments, overshadowing both the office and residential sectors, which received 17% each. Investments in the office sector plummeted by 79%, while the industrial and logistics sector saw a remarkable 378% increase compared to the same period last year.

Aashiesh Agarwaal, SVP of Investment Advisory at Anarock Capital, highlighted that the share of private equity in residential real estate rose to 17%, up from 8% the previous year, indicating increased activity in that segment. However, robust pre-sales and greater participation from PSU banks in construction finance could lessen the demand for high-cost private equity financing.

The commercial office sector, traditionally favored by private equity, faces challenges from geopolitical tensions and rising interest rates. Despite these conditions, the office leasing market performed strongly this quarter, driven by Global Capability Centers (GCCs) and flexible workspace solutions.

The industrial and logistics sector remains appealing to investors due to growth from manufacturing, e-commerce, and consumption. There’s a noticeable shift from Grade B to Grade A properties, focusing on quality and ESG considerations, and demand for warehouses continues to be strong among institutional and HNI investors.