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India’s rent-yielding grade A office market, consisting of 393.7 million sq ft across the top seven cities and valued over $61 billion, is suitable for future listing on stock exchanges through a real estate investment trust (REIT), according to JLL.
So far, India has seen the successful listing of three office asset-based REITs and one retail asset-led REIT, garnering a robust response from institutional and retail investors since 2019.
The recent introduction of a retail asset-led REIT IPO has been revolutionary for the real estate market, ushering in an era of diversification across other asset classes in India and paving the way for more REITs across multiple asset classes, the report said.
According to JLL, among the top seven cities, Bengaluru leads the office space 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.
“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. Institutional investments in office space stood at $28 billion during 2005-22, accounting for a 42 per cent share of the total investments across all real estate segments,” said Samantak Das, chief economist and head of research & REITs, India, JLL.
The office spaces managed by REITs have experienced significant growth, expanding three-fold from 24.8 million square feet as of March 31, 2019, to 74.4 million square feet as of March 31, 2023.
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“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 strong performance reviews of the listed REITs serve as evidence that professionally managed investments with transparent systems provide investors with more informed choices,” it said.
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. Additionally, REITs offer lower transaction costs, tax savings, easy liquidity, and access to professional expertise, all while maintaining transparency and accountability.
The report also highlighted that revenues of REITs have seen a significant increase due to their ability to raise portfolio lease rentals, which have grown at a compounded annual growth rate (CAGR) of 5.5 per cent over the past three years, compared to 2 per cent for comparable non-listed assets.
“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,” said Lata Pillai, senior managing director & head of capital markets, India, JLL.
The Indian real estate market is expected to witness further REIT listings of alternative asset classes, while the office sector will continue to see steady growth in REIT listings, Pillai added.
The growth of REITs will contribute to the development of the Indian property market by establishing a robust regulatory framework that ensures transparency and high governance standards. This framework attracts institutional capital, which typically participates through public market offerings, thereby increasing the depth of the market.
