A new report from Vestian titled ‘REITs: Reshaping India’s Commercial Space’ highlights a significant opportunity for Real Estate Investment Trusts (REITs) in India, with an estimated ₹4.5 lakh crore worth of Grade-A office space across the country qualifying as REIT-worthy. The report suggests that 60% of India’s total Grade-A office space is suitable for REITs, offering enormous upside potential to transform the commercial real estate investment landscape.
Despite this, India’s REIT market remains in its early stages compared to global peers, with only four listed REITs, covering an area of 125 million square feet across the retail and office markets. However, REITs are steadily gaining popularity among both foreign and domestic investors, primarily due to attractive dividend returns. Since their inception, Indian REITs have distributed ₹16,800 crore in dividends, surpassing the entire NIFTY Realty Index in terms of payouts. Yet, despite these better returns, the market capitalization of India’s REITs is still relatively low, accounting for just 13.7% of the total listed real estate sector. This is a stark contrast to more mature markets like the USA (98.9%), Australia (94.8%), and the UK (92.5%).
Among the four listed REITs—Embassy REIT, Mindspace REIT, Brookfield India REIT, and Nexus Select Trust REIT—the returns since inception have varied, with Embassy REIT leading at 24%, followed by Mindspace REIT at 18%, Brookfield India REIT at 6%, and Nexus Select Trust REIT at 39%. However, the BSE Realty Index has significantly outperformed REITs, generating a return of 317% over the past 66 months. Despite this, experts believe that India’s favorable regulatory environment, improved returns on investment, and a growing office market will provide a substantial boost to the REIT sector.
City-wise Breakdown of REIT-Worthy Stock
Vestian’s report also provides a city-wise analysis of the REIT-worthy stock across India’s top seven cities. Bengaluru leads with 33% of the total REIT-worthy office stock, followed by Hyderabad (21%) and NCR (15%). Mumbai and Pune together account for 21% of the REIT-worthy stock, while Chennai holds 10% and Kolkata contributes just 1%.
City Breakdown (in million square feet):
| City | Grade-A Stock | REIT-Worthy Stock | Building Value (INR Lakh Cr) |
|---|---|---|---|
| Bengaluru | 267.4 | 171.2 | 1.35 |
| Chennai | 82.6 | 50.9 | 0.35 |
| Hyderabad | 150.0 | 110.9 | 0.71 |
| Kolkata | 27.4 | 6.7 | 0.02 |
| Mumbai | 147.5 | 70.3 | 1.14 |
| NCR | 131.3 | 78.3 | 0.63 |
| Pune | 77.8 | 37.9 | 0.30 |
| Total | 884.1 | 526.3 | 4.50 |
Bengaluru boasts the largest share of REIT-worthy stock, while Hyderabad leads in the proportion of REIT-worthy inventory, with around 74% of its office inventory deemed eligible for REITs. In contrast, Kolkata has the smallest share, with only 24% of its total office inventory qualifying as REIT-worthy.
Sustainability Driving REIT-Worthy Stock
An increasing focus on sustainability is evident, as nearly 67% of India’s REIT-worthy stock is green-certified. Green-certified buildings offer a rental premium of 12-14% over non-green buildings, making them more attractive to investors. These premium rentals translate into higher dividend distributions, enhancing the appeal of REITs in India’s commercial real estate market.
“India’s economic growth has spurred a surge in demand for Grade A office spaces, particularly for flexible and managed offices. While supply remains constrained, developers are focusing on meeting this demand with new projects in the pipeline. With REITs currently holding a small share of the Grade A office market, the growing demand presents a significant opportunity for REITs to expand their footprint and enhance their portfolios, delivering greater value to investors.”
— Amal Mishra, Founder and CEO, UrbanVault
The Future of REITs in India
The future of REITs in India looks promising. As mutual funds and corporations progressively increase their stakes in REITs, several are also planning to launch dedicated schemes focused on REIT performance. This influx of capital is expected to improve the liquidity of REITs, making it easier for them to secure funding at competitive rates.
Additionally, the launch of the SM REIT, which targets smaller value assets, represents a step forward in improving liquidity in the sector. As India’s regulatory environment continues to mature, more REIT listings are expected, including expansion into new real estate segments. With continued government support and favorable policies from SEBI, India’s REIT market is poised for significant growth in the coming years.
In conclusion, while REITs are still in the early stages in India, they are expanding rapidly. The favorable regulatory environment, growing demand for office space, and the focus on sustainability make REITs an increasingly attractive investment tool, offering consistent income and diversification for investors.
Also Read: Data Benchmarking Institutions Launched to Empower Indian REIT Investors
