India’s rent-yielding Grade A office market comprises 393.7 mn sq ft of REIT worthy assets worth over USD 61 billion for future listing, as per JLL data. India has witnessed the successful listing of three office asset-based REITs, garnering a robust response from institutional and retail investors since 2019.
It is noteworthy that two of these REITs received a strong response during the pandemic period, highlighting the acceptability of this investment product. Prominent institutional and anchor investors were attracted to these listings due to the presence of stable rent-yielding assets backed by established developer and asset management brands.
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. 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 listing of REITs in India has introduced a real estate investment option akin to mutual funds. Traditionally, retail investors faced challenges when directly investing in commercial real estate, which have been addressed by the introduction of listed REITs in recent years. REITs provide diversification across asset classes and geographies, offering an opportunity to invest in real estate properties in smaller denominations through organized and formal platforms. Additionally, REITs offer lower transaction costs, tax savings, easy liquidity, and access to professional expertise, all while maintaining transparency and accountability.
“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 US$ 28 billion during 2005-22, accounting for a 42% share of the total investments across all real estate segments. India’s first three REIT listings comprised primarily office assets. Going forward, India’s Grade-A office space offers 393.7 mn sq ft of REITworthy assets valued at over USD 61 billion, across the top seven cities in India. Bengaluru leads the office space with 32% share, followed by Delhi NCR at 15% and Mumbai at 14%. The REITworthy potential has been based on the asset size and quality, ownership pattern and occupancy levels.” said Dr Samantak Das, Chief Economist and Head of Research & REIS, 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. The revenues of REITs have seen a significant increase due to their ability to raise portfolio lease rentals, which have grown at a CAGR of 5.5% over the past three years, compared to 2% 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. The strong response to the recent Nexus Select Trust REIT is a testament to the appeal of this investment vehicle. 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.” said Lata Pillai, Senior Managing Director & Head of Capital Markets, India, JLL.
The REIT market in India has achieved significant success. 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.
