How Foreign Investment is Driving the Commercial Real Estate Sector

When it comes to global investments, India is standing tall like a lighthouse at sea. India has been attracting a lot of foreign capital in its dynamic markets over the last decade. The commercial real estate sector, in particular, has seen unprecedented significant growth, fuelled partly by foreign direct investment or FDI.

With the real estate sector being one of the biggest employment generators in the country (second after Agriculture), the growth of Indian real estate has important implications for the Indian economy in general, and realty investors’ pockets in particular.

Record Foreign Investment in Indian Real Estate

Based on a report by international real estate firm Colliers, India’s real estate sector saw investments of $26.6 billion over the course of 2017 to 2022. The office sector, or the commercial real estate sector amounted for 40% of the total inflow of FDI between 2017 and 2022.

The share of foreign investment in real estate was $2.733 billion in 2023, as per a report from Vestian. The number is slightly down from 2022 because of global macroeconomic uncertainty & caution, but all expectations point to another good year for FDI in real estate, mainly due to the high performing Indian economy and robust real estate sector.

Why Indian Commercial Real Estate is Attracting Foreign Investment

India’s commercial realty market provides a number of offers to institutional investors that they can’t really refuse:

● Attractive Pricing

● Better Valuations

● Higher Yields As Compared to Other Countries

Major Indian cities such as Bengaluru, Delhi NCR, and Mumbai provide high rental yields at low pricing points.

Growth Due to Liberalised Policies

While Foreign Direct Investment (FDI) has certainly been a catalyst, the government’s strategic liberalization policies have helped prop up the market on its own two legs. Strategic policies, streamlined regulations, SEBI’s approval and framework for alternative investment models such as fractional ownership, all these have created an inviting landscape for foreign investors, creating a surge in interest and inflow of capital.

This has particularly lit a fire in the commercial real estate sector.

According to a joint report by the National Real Estate Development Council (NAREDCO) & Knight Frank, the Indian real estate industry is poised to reach heights of USD 5.8 trillion by 2047.

Office Spaces Leading the Line

Again, as per Knight Frank’s 2024 Outlook, most corporate heavyweights in India have opted for an office-first hybrid strategy. The corporate world and workspace has a new status quo, and India is very well equipped to support both the industry biggies and burgeoning start-ups.

Cities such as Mumbai, Bangalore, and Delhi are experiencing a construction renaissance, with skyscrapers and cutting-edge business complexes reshaping city skylines. This transformation not only represents the vibrancy of the commercial real estate sector, but it also reflects foreign investors' unwavering faith in the country's economic prowess.

Tier-2 & Tier-3 Cities Not Far Behind

The commercial real estate investment boom isn’t just confined to the major metropolitan cities, no, its impact is being seen in Tier-2 towns and cities. Cities such as Lucknow, Kochi & Chandigarh are seeing significant investment in the commercial real estate sector. As business expand and diversify, the demand for commercial and office spaces in secondary markets gains importance.

This decentralised growth is not only important for the overall economic development of the country, but also for creating opportunities for investors and those looking to diversify their portfolios by investing in commercial properties in India.

Based on a report by CREDAI and Cushman & Wakefield, 10 cities out of 17 have been found to hold extremely high potential for growth in the near future. These include Bengaluru, Hyderabad, Pune, Lucknow, Kochi, and Thiruvananthapuram.

In some of these tier-2 cities, growth is driven through the domestic market, while some of them specialise in the service sector. IT, trade and services, startups and local businesses, all play a role in turning a city into a hotspot for commercial real estate and a goldmine for investors looking to invest in CRE in India.

Fractional Ownership: Revolutionising the Commercial Real Estate Sector

The commercial real estate investment boom can partly be attributed to fractional ownership models: an alternative investment model that democratises commercial real estate investing and makes it easier and more accessible for regular investors to invest in high value trophy commercial properties that were earlier only in the reach of high net worth (HNI) individuals.

The Inclusive Appeal of Fractional Ownership

The fractional ownership market in Indian real estate is growing. According to Knight Frank data, the market size of fractional ownership properties in India is projected to grow by 65 percent, from $5.4 billion in 2020 to $8.9 billion in 2025, at an annualised rate of 10.5%.

Fractional ownership allows multiple investors to pool in their money and buy ownership stakes in high-end commercial properties which they wouldn’t be able to do singlehandedly. All the investors share the yields and the risk, making it a profitable investment for all with high expected Internal Rates of Return (IRR).

Fractional Ownership models open the door for a diverse range of investors, enable them to diversify their portfolios & provides them access to prime commercial properties in key commercial real estate locations.

The minimum entry ticket for investing in fractional ownership through Assetmonk, a pioneer in the alternative realty investment space, is 25 lakh rupees.

Bottom Line: Investing with Assetmonk

Talking about commercial real estate, JLL India Real Estate Market report for Q3 forecasted significant office space absorption of approximately 45 million square feet in 2024, easily exceeding the benchmark set in 2023.

The combination of foreign investment and India's commercial real estate sector paints a picture of potential growth and opportunity. With its fractional ownership model, Assetmonk invites investors to become active participants in this story rather than passive observers.

Assetmonk is leading the line in providing fractional ownership models for commercial properties; ushering in a new era in the dynamic real estate sector in India. The minimum entry ticket is set at 25 lakh rupees. This deliberate choice ensures that both seasoned and growing investors can partake in the benefits of commercial real estate investing.

Assetmonk’s web based investment platform offers a transparent and seamless process. We empower investors with real time updates on the property, monitoring capabilities, and customised participation in the decision making processes related to the property.