News Services

India office market holds potential to increase REIT market size over 6 times, ICRA


Indian commercial property market has potential to increase the office Real Estate Investment Trust (REIT) market size by 6.0-6.5 times as it has REIT-ready office supply of Rs. 5.8-6.2 lakh crore across top seven cities, said rating agency ICRA.

The REIT office supply in the country has increased by 3.3 times in the last five years to nearly 82 million sq ft across top seven cities including Mumbai region, Bengaluru, Pune, Hyderabad, Chennai, Delhi-NCR, and Kolkata.

“The REIT-ready office space is estimated at around 510 million sq ft (53% of total Grade A office supply as at September end). With a cap rate of 8.0-8.5%, the REIT-ready office market is valued in the range of Rs. 5.8-6.2 lakh crore,” said Rajeshwar Burla, Senior Vice President and Group Head, Corporate Ratings, ICRA.

This, according to him, creates a significant potential for the Indian REIT market. Bengaluru accounts for 31% of REIT-ready office supply followed by the Mumbai Metropolitan Region (MMR) and Hyderabad at 16% and 15%, respectively.

As at September end, the total grade A office stock in the top six markets stood at around 956 million sq ft, with Bengaluru having the highest supply followed by Delhi NCR and MMR.

At present, there are three listed office REITs in India– Brookfield India REIT, Mindspace REIT and Embassy REIT–together accounting for 9% of the total office supply as on September end.“The occupancy of office REITs is healthy at around 84% and SEZ space accounts for 64% of the operational REIT portfolio. The occupancy for the REIT portfolio has been declining in the last 12 quarters due to high vacancies in the SEZ space, post removal of direct tax benefits,” Burla said.However, he expects the recent announcement by the government of India to allow a partial and floor-wise denotification of IT-SEZs will help revive their attractiveness in the medium term and result in improved absorption.

ICRA has maintained a Stable outlook on India’s commercial office sector as India remains a preferred destination for global capability centres (GCCs).

Favourable demographics, a highly skilled and cost-effective talent pool, availability of high-quality office spaces at competitive rentals, would continue to drive demand for the Indian office portfolio in the medium to long term.

(You can now subscribe to our Economic Times WhatsApp channel)


Source link