With an existing real estate investment trust (REIT) penetration rate of 11 per cent, India has significant room to increase its REIT share up to 68 per cent, aligning with other Asia-Pacific (APAC) countries, such as Singapore and Japan, which have more than 50 per cent of their office portfolio under REITs, a Colliers India report said. Currently, the three listed office REITs cumulatively hold approximately 74.4 mn sq ft of office REIT stock, representing around 11 per cent of the total existing Grade A office stock, the report said. REIT is a company that owns, operates, or finances income-generating real estate. Modelled after mutual funds, REITs pool the capital, making it possible for individual investors to earn dividends from real estate investments without having to buy, manage, or finance any properties themselves. It said about 380 mn sq ft of the existing Grade A office space qualifies to be listed as REITs. “Amongst the top six cities, Bengaluru leads with the largest share of 'REITable' stock at 25 per cent, followed by Hyderabad at 19 per cent. Furthermore, an additional 41 mn sq ft of under-construction office stock, which is expected to enter the office market by the end of 2023, holds the potential to be 'REITed',” Colliers said. “REITs in India are still at their early stages compared to other regional markets. Strikingly, the market capitalisation of Indian REITs is less than 10 per cent compared to the USA, Singapore, and other countries in the APAC. Considering the size of the Indian office market there exists a huge potential for more number REITs and expansion of current REITs,” said Piyush Gupta, Managing Director, Capital Markets and Investment Services, Colliers India. Colliers said the underlying office sector has demonstrated resilience, particularly in the top six cities, 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 & flex space, with market likely to bounce back in the latter part of the year. “The overall returns on listed REITs in India, including dividend yield, have been a major factor in the success of REITs in the country. The regulatory structure has also evolved and fallen in line with global best practices. In years to come, we are likely to see REITs expand to other asset classes such as Industrial, Data Center, Hospitality, Healthcare, and Education,” Gupta said. It said about 380 mn sq ft of the existing Grade A office space qualifies to be listed as REITs. “Amongst the top six cities, Bengaluru leads with the largest share of 'REITable' stock at 25 per cent, followed by Hyderabad at 19 per cent. Furthermore, an additional 41 mn sq ft of under-construction office stock, which is expected to enter the office market by the end of 2023, holds the potential to be 'REITed',” Colliers said. “The three office REITs in India have been able to establish a strong platform to evince amongst global investors’ interest to commit funds in development-based assets. REITs are evolving and have paved the way for other asset classes as well,” it said. About two-third of the Grade A office stock which can come under REIT falls in Secondary Business Districts (SBDs) of the top six cities in India. India’s first Retail REIT was listed on stock exchange in May 2023, expanding the investible cosmos for investors.
