Coronavirus impact in India: Blackstone-Backed REIT sees office demand dipping in 2020

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Updated: May 20, 2020 11:12 AM

The coronavirus outbreak has led to businesses deferring decisions on whether to lease new space, according to Vikaash Khdloya, deputy chief executive officer at the Blackstone-backed firm.

Coronavirus impact in India, Blackstone, office properties,REIT, coronavirus outbreak, Brookfield Property Partners, JPMorgan Chase & Co, google, india lockdownEmbassy REIT reported occupancy of 92.8% and new leasing of 389,000 square feet January-March. It collected all rent due in March and 92% for April.

Embassy Office Parks REIT predicts demand for office properties will dip significantly in India this year before a possible rebound stemming mostly from technology firms. The coronavirus outbreak has led to businesses deferring decisions on whether to lease new space, according to Vikaash Khdloya, deputy chief executive officer at the Blackstone-backed firm. However, it has also halted construction of top-quality buildings, and Embassy’s tech-focused portfolio may benefit from the supply crunch and disruptions in business behavior, he said on an earnings call.

“While demand is likely to moderate considerably through 2020, we believe that in this environment, Grade-A supply will reduce considerably over the medium term, consolidation in the office market will continue, and high-quality institutional landlords, such as Embassy REIT, will gain market share,” Michael Holland, the firm’s chief executive officer, said on the call.

Embassy REIT is considered a bellwether for India’s commercial real estate market as it is among the largest owners of technology and business parks, with clients including Google and JPMorgan Chase & Co. The office segment has been a bright spot in the country’s otherwise struggling property market and has received record foreign investment over recent years, including from Blackstone and Brookfield Property Partners.

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Embassy REIT reported occupancy of 92.8% and new leasing of 389,000 square feet January-March. It collected all rent due in March and 92% for April. The REIT is now considering modest rent waivers for food courts, retail and small business tenants, whose contribution to overall revenue is negligible, Khdloya said.

India’s overall office market saw a 30% drop in net absorption across the top seven cities during the first quarter of 2020, according to data from JLL Research. Embassy REIT’s units have lost about 18% of their value this year.

The recovery timeline remains uncertain and multiple outcomes are possible based on the timeframe of India’s lockdown, Embassy said in an investor presentation. Evolving themes like work from home, de-densification, and flight to quality will weigh on demand.

However, the firm’s technology parks stand to benefit from virus-induced disruptions, Khdloya said. Embassy REIT’s existing portfolio is 50% focused on technology and Bengaluru, known as India’s Silicon Valley, contributes 62% of its assets.

“Global technology spends will continue to grow, especially in digital, cloud, data services and cyber security to support new lifestyles,” Khdloya said. “Further, increased cost pressures on global businesses may increase offshoring to the benefit of India office demand in the mid-term as was the case post global financial crisis in 2009.”

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