NEW DELHI: ICRA estimates the real estate investment trust (REIT)-ready office supply market has the potential to increase the office REIT market size by 6-6.5 times. The REIT office supply has increased by 3.3 times in the last five years to ~82 million sq ft across the top seven cities i.e. Bengaluru, Chennai, Delhi-NCR, Hyderabad, Kolkata, Mumbai and Pune in India.
Rajeshwar Burla, senior vice president and group head, Corporate Ratings, ICRA, said. “The REIT-ready office space is estimated at around 510 millio sq ft (53% of total Grade A office supply as on September 30, 2023). With a cap rate of 8-8.5%, 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. 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 milliom sq ft, with Bengaluru having the highest supply followed by Delhi NCR and MMR. 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 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,” said Burla.
