REITs in India: On an Upward Trajectory

REITs in India: On an Upward Trajectory

REITs, today, are increasingly being preferred as a viable investment option as they are real estate asset backed, operated and maintained by trusts. While the share of REITs in the overall real estate market capitalization is quite substantial on a global scale and have been in existence in the west since the 1960s, the current SEBI guidelines related to REITs in India were approved only in 2014. Even then, it took several years before the first REIT could be launched in the country, with numerous amendments effectuated to SEBI’s original REITs regulations in order to align them with stakeholders’ expectations. The country currently has three REITs listed with SEBI (Embassy Office Parks REIT launched in 2019, Mindspace Business REIT in 2020 and Brookfield India REIT in 2021), comprising a large volume of operational commercial buildings with Category A tenants and with good tenant mix.

The growing significance of commercial real estate

One of the major trends observed in recent years has been the emergence of the commercial assets segment as the most preferred segment for real estate investment, surpassing the investment in the residential sector. Factors such as development of Grade A commercial space, fairly reasonable rentals and low vacancy levels have led the commercial segment to emerge as investors’ favouritea asset class. Not surprisingly, all the three operational REITs have a substantial stronghold over commercial real estate assets, accounting altogether for around 87.7 million sqft of REITable stock. Embassy Office Parks REIT, in association with Blackstone Group, owns and operates 42.4 million sqft portfolio of infrastructure, office parks and buildings, while Brookfield owns and operates a portfolio of infrastructure and real estate assets comprising 42 million sqft of office properties, of which around 14 million sqft has been offered under the REIT. Mindspace Business REIT, sponsored by K Raheja Corp, has over 31.3 million sqft of total leasable area.

Resisting the pandemic impact

The impact of the COVID-19 crisis has been perceptible across all real estate asset classes. However, despite the apprehension around the future of offices, office assets continue to hold favourable investment prospects, evidenced by the quantum of investment committed towards the sector in 2021. As a matter of fact, Embassy Office Parks REIT reported an 18.1% increase in net operating income (NOI) to INR 1,245 crore in H1 FY2022 on a YoY basis, while its revenue grew 17.9%. Considering that deals were closed in the midst of the COVID-19 crisis, this depicts the maturity of the market and the degree to which India’s real estate corporate finance landscape has evolved.

Further, the fact that the past two quarters have seen a measured revival in office absorption, attributable largely to positive expectations buoyed by effective vaccination drives, increased mobility and the imminent return of employees to work, has further bolstered the confidence of REITs in the country. The repercussion of the pandemic notwithstanding, the dividend distribution for all the three REITs have been reasonably fair, noted upwards of 6%, thus ensuring that they deliver value to their stakeholders.

REITs in the wings

While the rise of the Omicron variant may play spoilsport in the launch plans of more REITs, the fair performance of the operational REITs, observed in spite of the pandemic, has encouraged several others. NCR-based realty major DLF is making its rental arm DLF Cyber City Developers Ltd REIT-ready, while Blackstone Group is reportedly planning to list India’s first retail properties-centred REIT, valued at about USD 2.2-2.5 billion, after integrating and preparing its portfolio of mall properties across the country. Another key realty player, Tata Realty and Infrastructure Ltd has announced that it will scale up its commercial real estate portfolio to at least 12 million sqft in the next few years before considering launching a REIT public issue to monetise its rent-yielding office assets. Over time, with strengthening of portfolios across varied asset classes, structural themes of REITs are expected to emerge and we expect more retail, warehousing and hospitality assets as part of REIT offerings.


While REITs performance has been appreciable so far, there are a few concerns such as the fragmented nature of the market and the high level of compliance and stringent regulatory requirements for REITs, that could hinder expansion of the REIT market in India. Nevertheless, there lies vast untapped opportunity in REIT market, it being still at a relatively early stage in India. Given that the country has a strong commercial office presence, REITs stand to gain substantially. A diversified investment plan and one that involves commercial real estate without the risk of owning the physical asset is certainly the chief selling point of REITs. Besides, SEBI’s announcement of reducing the minimum application value will make them more attractive for retail investors. Thus, with relevant factors such as improvement in the economy, growth of other asset classes besides commercial real estate, and more participation envisaged of large domestic institutional investors, REITs in India is set to witness a continued upward growth trajectory in the forthcoming times.



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