REITable office assets across major cities valued at Rs 2.62L cr

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March 30, 2021 8:14 AM

The potential of REIT market in India in 2021 seems bright with both investors and developers expressing optimism following the successful launch of three such vehicles in the country in the last 20 months, which is further helped by improved liquidity, transparency and corporate governance.

REIT marketJLL India, in a recent report, estimates that 284 million sq ft (MSF) of office space valued at Rs 2.62 lakh crore across top seven cities can be listed under real estate investment trusts, or REITs.

The potential of REIT market in India in 2021 seems bright with both investors and developers expressing optimism following the successful launch of three such vehicles in the country in the last 20 months, which is further helped by improved liquidity, transparency and corporate governance.

JLL India, in a recent report, estimates that 284 million sq ft (MSF) of office space valued at Rs 2.62 lakh crore across top seven cities can be listed under real estate investment trusts, or REITs. Of this, Bengaluru accounts for more than one-third (31%), followed by Delhi-NCR at 17% share. Mumbai, Chennai and Hyderabad account for 13% each, while Pune controls 11% share.

“This estimate was based on buildings that meet two important criteria – single ownership and large floor space with high occupancy rate. The office space led the pack among asset classes in India, with direct office transactions reaching $3.1 billion in 2020, underscoring its importance to future REIT listings in India,” explains JLL India chief economist, Samantak Das.

India’s silicon valley with large IT spaces housing global occupiers will be the most favoured market for newly listed REITs, given that most assets are singly owned by developers or large funds, allowing for the aggregation of assets into managed structures. Bengaluru’s potential assets available for securitisation are estimated at 88 MSF, which is valued at Rs 81,468 crore.

The report points out that healthy performance of first two listed REITs lowered the marginal cost of capital for Indian real estate. A positive feedback loop was created as acquisitions became more accretive, which in turn further boosted unit prices.

“REIT sponsors successfully recycled capital post-listing through asset divestments and rationalisation of their equity stakes. This raised institutional groups’ confidence to acquire larger portfolios. Portfolio discounts are likely to persist as lending conditions are likely to remain tight, providing an arbitrage opportunity for well-capitalised groups,” it added.

There are opportunities for institutional investors to participate in this structural theme, potentially by assembling complementary portfolios for securitisation into REITs, or co-investing with existing platforms pre-IPO, the report suggested.

Priyank Shah, director for capital markets, JLL Asia Pacific, pointed out that India’s REIT evolution had been both, rapid and revolutionary. The fact that closing of transactions was made possible even amidst a pandemic has demonstrated the maturity of the market and transformed India’s real estate corporate finance landscape and market liquidity. “Furthermore, we are encouraged by larger domestic institutional investor participation in more recent listings and emergence of a public private arbitrage play welcomed by all investors in the market.”
REITs also provided a hedge to investors against an increasingly volatile market and with yearly yield of 7-7.5% per annum in addition to the capital appreciation has proved far more attractive than bonds and other debt instruments. Besides, competitively priced equity, REITs have gradually been able to access cheaper debt, the report notes.

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