The commercial real estate market in India has the potential to increase the office Real Estate Investment Trust market size by 6 to 6.5 times. The REIT office supply has increased by 3.3 times in the last five years to almost 82 million square feet (msf) across the top seven cities in India, an analysis by rating agency ICRA has said.
The top seven cities included Mumbai region, Bengaluru, Pune, Hyderabad, Chennai, Delhi-NCR, and Kolkata.
Bengaluru accounts for 31% of REIT-ready office supply followed by the Mumbai Metropolitan Region (MMR) and Hyderabad at 16% and 15%, respectively.
As on September 30, 2023, the total grade A office stock in the top six markets stood at around 956 msf, with Bengaluru having the highest supply followed by Delhi NCR and MMR.
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There are three listed office REITs in India currently – Brookfield India REIT, Mindspace REIT and Embassy REIT, which account for ~9% of the total office supply as on September 30, 2023.
“The REIT-ready office space is estimated at around 510 msf (53% of total Grade A office supply as on September 30, 2023). 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. This creates a significant potential for the Indian REIT market,” said Rajeshwar Burla, Senior Vice President and Group Head, Corporate Ratings, ICRA.
“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. However, the recent announcement by the Government of India to allow a partial and floor-wise denotification of IT-SEZs is expected to revive their attractiveness in the medium term and result in improved absorption,” Burla added.
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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.
