Office assets worth over $60 billion present future REIT opportunities: Report

May 23, 2023

Top-quality office assets in India worth over $60 billion with firm committed rents present a big opportunity in the future as listed real estate investment trusts, according to a report by JLL India.

The 397 million square feet (msf) of REIT-worthy assets are spread across the top seven cities in India with Bengaluru leading with 32 per cent share, followed by Delhi NCR at 15 per cent and Mumbai at 14 per cent. “The REIT-worthy potential has been based on the asset size and quality, ownership pattern and occupancy levels,” the report said.

Over the last five years, four REITs have been listed in India, of which three comprise the majority of office assets. Of these, Mindspace Business Parks REIT and Brookfield India REIT launched during the pandemic when people were mostly working from home, occupancy at offices was minimal, and the future of offices seemed to be a hybrid model. All the REITs attracted significant investor interest, especially from overseas institutions.

‘Sweet spot’

“India’s office segment has been the sweet spot for global investors due to strong demand growth coupled with lower vacancy levels and rising rentals,” said JLL India chief economist, Samantak Das. Between 2005 and 2022 institutions have poured in $28 billion into the Indian office sector, accounting for 42 per cent of the total investment in the real estate sector.

The sustained growth of India’s office market, coupled with the enhanced transparency fostered by REIT implementation, has created an environment conducive for large financial institutions to participate in these listings, the report said.

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The listing of REITs in India has introduced a real estate investment option akin to mutual funds. REITs provide diversification across asset classes and geographies, offering an opportunity to invest in real estate properties in smaller denominations through organised and formal platforms. They also offer lower transaction costs, tax savings, easy liquidity, and access to professional expertise, while maintaining transparency and accountability.

Robust demand

The office spaces managed by REITs have expanded three-fold from 24.8 msf as of March 31, 2019, to 74.4 msf as of March 31, 2023. The revenues of REITs have seen a significant increase due to their ability to raise portfolio lease rentals, which have grown annually at 5.5 per cent over the past three years, compared to 2 per cent for comparable non-listed assets.

Lata Pillai, Senior Managing Director & Head of Capital Markets, India, JLL, said, “Retail and hotels have experienced robust demand following the pandemic, resulting in revised asset pricing. Warehousing has also witnessed significant growth in recent years, with global funds aggregating these assets through platforms. The listing of these asset portfolios through REITs represents the next logical step.”

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She added that the office sector will continue to see steady growth in REIT listings.

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