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):

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

The post Huge Upside Potential for REITs in India, INR 4.5 Lakh Cr Worth of Prime Office Stock Identified as REIT-Worthy appeared first on Square Feat India.

In Q2 2024 alone, approximately 13 million square feet of office space was leased in green-certified buildings across the top six cities, marking a significant 24% year-over-year increase and an impressive 82% share of total leasing activity for the quarter. Bengaluru and Mumbai emerged as leaders in this trend, together accounting for over 50% of the green-certified leases in the quarter. Notably, about 60% of these leases were in relatively new developments constructed in the past five years.

Growing Green Certification Among Occupiers

The shift towards green office spaces is driven by an increasing awareness among corporate occupiers of the role that sustainable buildings play in addressing climate change. Prominent green certifications such as LEED, GRIHA, and WELL are becoming more sought after as they offer benefits like lower operational costs, improved indoor air quality, and enhanced employee productivity.

“Over the last few quarters, developers, investors, and occupiers in the office market have increasingly embraced the adoption of sustainable elements in their portfolios. With 13 million square feet of leasing in green-certified buildings in Q2 2024, a significant 82% of occupiers were inclined towards green-certified buildings. This reflects occupiers’ strong commitment to align their sustainability goals with the broader sustainability targets of the country,” said Arpit Mehrotra, Managing Director, Office Services, India at Colliers.

Sector-Specific Trends

Technology and Engineering & Manufacturing firms are at the forefront of this green shift, with about 80% of their leasing activity in green-certified buildings since 2023. Additionally, 62% of flexible workspace providers also prefer green-certified locations. The technology sector alone accounted for 27% of the green-certified leasing, followed closely by Engineering & Manufacturing and BFSI sectors.

City-wise data highlights:

• Bengaluru: 68% of leasing in green-certified buildings, with Engineering & Manufacturing leading.
• Chennai: 79% of leasing in green-certified buildings, predominantly by the Technology sector.
• Delhi NCR: 74% share, with Technology firms driving the trend.
• Hyderabad: 76% share, largely due to Technology firms.
• Mumbai: 72% share, with BFSI sector leading.
• Pune: 71% share, with BFSI sector prominent.

Expansion of Green Office Stock

The green office stock is set to grow substantially. As of June 2024, approximately 67% of Grade A office buildings in the top six cities were green-certified. With nearly 70% of new Grade A office completions in Q2 2024 being green-certified, the trend is expected to continue. Over the next 2-3 years, the green-certified Grade A office stock is projected to exceed 600 million square feet.

“With increased inclination among occupiers for green-certified buildings, several Grade A developers are boosting their sustainable offerings. During Q2 2024, nearly 70% of new supply was green-certified. Developers are also retrofitting older office buildings to meet green standards. About 300-350 million square feet of commercial building stock older than 10 years have the potential for refurbishment, further expanding the green-certified office inventory,” noted Vimal Nadar, Senior Director and Head of Research at Colliers India.

The surge in green office space leasing and development reflects a broader shift towards sustainability in India’s commercial real estate sector, highlighting a significant step towards meeting environmental, social, and governance (ESG) goals.

Also Read: Industrial & warehousing demand remains healthy with about 13 mn sq ft of leasing in H1 2024

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