Investments in alternatives cross $2 bn in 5 years: Report

September 5, 2023: Alternative assets in India received cumulative investments of about $2 billion during the last four to five years (2019-H1 2023), led by foreign investors, according to a Colliers India report. The report also mentioned that foreign investments accounted for 78% of the total investments in the segment, as investors continued to seek newer markets and newer avenues segments to diversify their asset portfolio while enhancing risk-adjusted returns.

Further, the report stated that institutional investors who were primarily focused on core asset classes have been building up their non-core assets around Data centres, Life sciences, Co-living, amongst others. Investments in alternatives have seen continued growth since 2019, driven by the emergence of a shared economy, increased digitalisation and supportive government policy initiatives.

The report said that investment inflows in alternatives touched $0.9 bn in 2022, a significant rise of 4.4X from 2019. Foreign investments in the sector have been the driving force and have recorded a 6X rise in 2022 compared to 2019. Foreign investors continue to bet on the Indian real estate market, as India continues to be the fastest-growing economies across APAC, Europe and Americas, with GDP pegged at 6.6% in 2023 by the IMF.

According to the report, investment inflows in alternative assets, including data centres, life sciences, senior housing, holiday homes, student housing, etc., were $195.7 million (mn) in 2019, $359 mn in 2020, $452.5 in 2021 and $866.7 in 2022. For H1 2023, the investment inflows in alternative assets were 158.2.

“As conventional asset classes like office, residential, hospitality and retail are evolved with significant investor and operator penetration, the alternatives are now poised for exponential growth over next few years.  Alternate asset industry, which revolves around enhanced customer experiences, flexibility in office, residential, technology usage and data storages, is likely to provide significant partnership opportunities to investors and operators. While core sectors continue to dominate the institutional inflows in the Indian real estate sector, the share of alternatives has risen significantly from 3% in 2019, to 18% during 2022.” said Piyush Gupta, managing director Capital Markets & Investment Services.

Data centers dominate alternative investment inflows

According to the Colliers India report, since 2019, data centers have received $1 bn of institutional inflows, with inflows rising multi-fold in the last five years. While other alternative asset classes such as Life sciences, co-living, etc., have also seen increased traction, data centers have remained popular amongst institutional investors. During the period under review (2019- H1 2023), data centers accounted for around 51% share in the total investments in alternatives.

The report mentioned that strong growth in data consumption has driven the growth and development of data centers in India, in the last five years. Investors are enthused by burgeoning demand and attractive returns of the data centers and have been actively infusing funds over the last two to three years. Data centers in India have given promising returns at about 16-18%, much higher than 8-9% in core office assets, which have further accelerated investors’ interest in the space.

As data centers are capital-intensive and entail greater technical know-how investors are increasingly partnering with data center operators, who are ramping up expansions in the country. Global hyperscalers too are viewing India as a prime market for expansion to capitalise on the rising demand from cloud usage. Data centers are also witnessing large platform deals between developers and investors who are looking to grow their businesses multi-fold. During May 2023, Lumina CloudInfra, a data center platform owned and managed by Blackstone’s Real Estate and Tactical Opportunities funds, announced its plan to invest more than $300 million to develop a hyperscale data center campus in Navi Mumbai. Similarly, Reliance Industries partnered with Brookfield Infrastructure and Digital Realty to develop data centers in select locations in India.

Global investors have specifically favoured data centers over the last five years, accounting for over 90% of the total investments in the sector during the period, the report stated. Foreign investments have helped data center operators to achieve the desired scale, foray new markets and achieve development and operational expertise by providing access to capital. At the same time, according ‘infrastructure’ status to data centers has facilitated concessional credit availability for the development of large-scale data centres. Data protection Bill 2023 will further aid growth and investments in the sector, the Colliers India report said. The investment inflows was $82 in 2019, $235 in 2020, $270.5 in 2021 and $448.7 in 2022.

Vimal Nadar, senior director and head of research, Colliers India, said, “Global investors are increasingly allocating funds towards alternative assets, with their share in total investments rising from 55% in 2019, to 75% in 2022. While data centers continue to dominate investments in alternatives, there is an increased opportunity in sectors such as Co-living, with more organised players looking to enter the space. Rising demand coupled with strong growth fundamentals for Co-living sector remain highly supportive of required investments over the long-term. As the market grows towards maturity, the sector will likely witness allocation of more foreign capital, enabling investors to enter new markets and benefit through economies of scale, fostering institutional investments in the sector.”