REIT in India : so far so good

September 9, 2019 / By

In April 2019, India witnessed the launch and successful listing of its first Real Estate Investment Trust, the Embassy Office Parks REIT (REIT) by Blackstone and Embassy, a joint venture.. This key event marked the opening of a fresh investment avenue and unfolded a bright new chapter for the country’s real estate sector.  is currently trading at a premium of 25% to its allotted price. This is likely to attract more retail as well as global investors, as the REIT has performed better during adverse primary market conditions.

REITs give retail investors an opportunity to invest in commercial properties which until recently, was only a dream in India. To add to it, the Securities and Exchange Board of India has reduced the minimum allotment value from the initial INR 200,000 to INR 50,000, giving further push to retail investors to invest in this new vehicle.

Figure 1: Embassy Office Parks REIT trading at premium to its listed price
Source: National Stock Exchange

The performance of the first Indian REIT has put to rest all apprehensions and may lead to listing of more REITs in India. Indian real estate has attracted USD 31 bn in investment from  2009-18, of which around 40% has been invested in commercial office space. The strong office space absorption trend over the past few years and lowering vacancy has pushed rentals upwards promising stable rental returns. Naturally, future REITs are primarily expected to stem from commercial office space.

India’s commercial office segment has been the favourite asset class of institutional investors over the years. The estimation of REIT-worthy office space would depend on the asset ownership, size of the property, leased space and asset quality. Since single ownership and larger space with good occupancy rates are most likely candidates for REIT, JLL Research has estimated that nearly 294 mn sq ft of office, space stock would be eligible for REIT out of total office stock of around 541 mn sq ft. This would translate to a potential investment of USD 35 bn.

Figure 2: India’s office space REIT potential
Source: JLL REIS Research

Bengaluru has the highest REIT worthy assets totalling 97.8 mn sq ft valued at USD 10.7 bn. It has large quality IT office spaces occupied by prominent global players. Most of these assets are singly owned by developers or large funds which makes it easier to aggregate the assets and manage them for REITs.

The listing of India’s first REIT has created professional structure for investments in real estate assets. The regulatory framework has ensured that these assets are managed by industry professionals with required expertise. The start of a REIT market will thus ensure transparency and maturity. The regular updates, analyst coverage and mandatory disclosures will lead to increasing investor education and awareness. India’s first REIT has thus started on a good wicket and we hope that it has a long inning.

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