The success of the first REIT by the Blackstone-Embassy JV has bolstered the confidence of other developers and investors to come up with similar listings
- Developers with a commercial asset portfolio can use this option to reduce their debt
- The growth of REIT listings in India will ensure more transparency
The success of the first REIT in India, Embassy Office Parks, has created the possibility that around 100 mn sq ft office space could be listed under REIT in the short to medium term out of the total REIT-worthy assets of 302 mn sq ft. The total REIT-worthy assets, which includes Embassy Office Park REIT, would translate to a potential investment of USD 38.6 billion.
As per JLL Research, India’s top six cities, Delhi-NCR, Mumbai, Pune, Bengaluru, Chennai and Hyderabad, account for a majority of the share of Grade-A office space assets. Marquee clients occupy these offices. And India’s leading commercial office space developers are exploring REIT listings.
The strong demand for office space in 2019 adds to the market of REIT-worthy assets.
The success story of India’s first REIT
Embassy Office Parks launched in April 2019 and heralded a new investment journey and has redefined the growth of the sector. Its performance has put to rest all apprehensions and it is likely to lead to the more REIT listing in the country. It has bolstered the confidence of other developers and investors (primarily with commercial office asset portfolio) to list their assets under REIT platform.
The Embassy Office Parks REIT has seven office parks and four office buildings in Bengaluru, Pune and Noida with two completed and two under-construction hotels totaling 1,096 keys. The total portfolio is of 32.6 mn sq ft comprising 24.2 mn sq ft completed and 2.9 mn sq ft under-construction office space and proposed development area of 5.5 mn sq ft.
The REIT has registered robust numbers since inception. Revenue from operations for 2Q FY2020 grew y-o-y by 15 percent to Rs 5,206 mn and cumulatively grew y-o-y by 17 percent for 1H FY2020. Net operating income for 2Q FY2020 grew y-o-y by 16 percent to Rs 4,384 mn and cumulatively grew y-o-y by 18 percent for 1H FY2020. Net operating income margin for 2Q FY2020 and 1H FY2020 stood at 84 percent.
For the reasons above, Embassy Office Parks’ REIT is currently trading at a premium of 37 per cent to its allotted price as on November 25, 2019. This performance, during adverse market conditions, is likely to attract more retail and global investors.
Embassy Office parks REIT: 37% returns since listing on April 1, 2019
What we may witness in future?
For instance, Bengaluru-based Prestige Group has 11 million sq ft of rent yielding assets and nearly 15 million sq ft of under-construction office assets. As per market reports, there are strong indications of Blackstone Group and K Raheja Corp listing their jointly-owned 20 million sq ft commercial portfolio through REIT. Together, these players would account for almost 50 percent of the potentially upcoming REIT universe. As per publically available news reports, other players who are also considering REIT listings include Bengaluru-based RMZ Corp, Mumbai-based Godrej Properties and Pune-based Panchshil Realty.
Key trends that will guide the growth of REIT in India
The success of Embassy REIT brings to the forefront some of the key trends that will influence the growth of REITs in India.
With the success of the first REIT, subsequent listings are expected to make a gradual start in India in line with global trends. Several positive factors such as progressive policies, smaller lot size, tax efficiency, strong investor interest and presence of global investors will work in favour of REIT listings in India.
A strong demand-supply condition in the office market would also drive the return of REITs. However, any impediment to the supply pipeline will impact the REIT listings too.
Limited knowledge and awareness of the new product are one of the biggest hurdles in front of fund managers. Moreover, investors have not even seen a full year of the run for the first REIT. Compared to this, they already have multiple alternate investment options across other asset class to look at within the ambit of the capital markets.
Since REITs are listed on the NSE and BSE, trends in the equity markets will influence the return expectations of retail investors looking at REITs market. As a result, like any other market-linked investment option, retail investors have to be told about the risks.
India’s commercial office space is expected to dominate the REITs market due to its robust growth, resulting in rising rental yields and steady rise in capital values. Despite certain challenges in terms of investor awareness about the product currently, interest is expected to increase over the years.
The growth of REIT listings in India will ensure more transparency and maturity due to the mandatory regulation over property valuation, regular updates, research coverage and disclosures relating to assets managed by REIT.
Developers with a commercial asset portfolio can use this option to reduce their debt from proceeds received by listing their assets through REIT. Though the growth in the REIT market in India has been gradual, we can expect it to pick up significantly going forward.
Residential demand up 7.3% YoY, supply grows 6% YoY: Magicbricks PropIndex Report Q3’22
New Delhi/Noida, September 28, 2022: Magicbricks PropIndex Report for Q3, 2022 reveals that the aggregate demand (searches) increased 7.3% YoY,...
New York Life Insurance Company ( NYL ) co-investor in Max Estate’s Office Project
New Delhi, September 28, 2022: Max Estates, the real estate arm of Max Ventures & Industries Limited (MaxVIL), announced its...
How creativity and technology in Coworking Spaces luring today’s Corporates?
By Aditya Verma, Founder & CEO, The Office Pass (TOP) When you talk of the benefits of coworking, convenience and...
Maranello receives good response at D-arc BUILD’s 4-day Expo held at Pragati Maidan
New Delhi: Maranello, which was an exhibitor at the recently held D-arc BUILD’s 4-day Expo, during September 22-26, 2022 at Pragiti Maidan, New...
SAYA Homes ushers in seasonal festivities, launches ‘Navratri Carnival’
Noida, September 27, 2022: On occasion of Navratri, SAYA Homes, is organizing ‘Navratri Carnival’. The Navratri Carnival begun on September...
Pacific Mall NSP set to host Pacific Dandiya Nights on September 30, October 1, 2022
September 27, 2022, New Delhi: Pacific Mall NSP, in association with Actisoul Events, will kick off ‘Pacific Dandiya Nights’ from...
News4 weeks ago
Two newly appointed Members of UP RERA to hear the cases from the regional office
Report4 weeks ago
Over 45 Data Centres spanning ~13 mn sq ft to boot up in India by 2025-end
Developers Speak2 weeks ago
Festive season to spurt bookings: Experts
Developers Speak2 weeks ago
Chandni Chowk at the Centrepiece in tune with the wave of Commercialisation
News4 weeks ago
Retail leasing up 166% Y-o-Y in H1 2022
News4 weeks ago
Property prices to rise 27-30% annually post MOPA Airport in North Goa: 360 Realtors
Report3 weeks ago
Private equity inflow in PropTech firms up 5% to $270 mn in H1 2022: Housing.com
New Launches3 weeks ago
Makemyhouse.com expands in India, introduces partner program in 60 cities