The Secondary Business Districts (SBDs) of the top six cities in the country house approximately two-thirds of the REITable Grade A office stock, according to a report by Colliers.
Amongst these SBDs, the SBD of Hyderabad holds the highest quantum of REIT-worthy stock with a 28 per cent share, while Bengaluru stood at 24 per cent.
Over 60 per cent of the Grade A stock within SBDs is REIT-worthy, while about hHowever, the Central Business Districts (CBDs) have a relatively lower share of REITable stock, at 10 per cent, due to limited new supply and relatively older buildings.
Currently, the three listed office REITs cumulatively hold approx. 74.4 million square feet of office REIT stock, representing around 11 per cent of the total existing Grade A office stock.
“The market capitalization of Indian REITs is <10 per cent lower compared to the USA, Singapore, and other countries in APAC. Considering the size of the Indian office market, there exists a huge potential for more REITs and expansion of current REITs,” said Piyush Gupta, Managing Director, Capital Markets and Investment Services, Colliers India.
The underlying office sector has demonstrated resilience with strong occupancy levels, despite looming externalities affecting demand. Office vacancy levels remained stable in Q1 2023 at 16.4 per cent pointing to a fundamentally strong commercial office market. The outlook for the office sector remains optimistic, led by technology and flex space, with the market likely to bounce back in the latter part of the year, the report noted.
The overall returns on listed REITs in India, including dividend yield, have been a major factor in the success of REITs in the country. In years to come, we are likely to see REITs expand into other asset classes such as industrial, data centre, hospitality, healthcare, and education, explained Gupta.