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According to ICRA's estimates, the office REIT market size could potentially be increased by 6.0–6.5 times through the REIT-ready office supply market. The availability of REIT office space has increased by 3.3 times in the last five years, totaling 82 million square feet (msf) in the top seven Indian cities.
Rajeshwar Burla, Senior Vice President and Group Head of Corporate Ratings at ICRA, highlighted key insights. He noted that the REIT-ready office space stands at approximately 510 msf, which accounts for 53% of the total Grade A office supply as of September 30, 2023. With a cap rate ranging from 8.0-8.5%, the REIT-ready office market is valued between INR 5.8-6.2 lakh crore, indicating significant potential for growth.
Bengaluru leads the pack, constituting 31% of the REIT-ready office supply, followed by the Mumbai Metropolitan Region (MMR) and Hyderabad at 16% and 15%, respectively. As of September 30, 2023, the total Grade A office stock in the top six markets amounted to around 956 msf, with Bengaluru taking the top spot followed by Delhi NCR and MMR.
Presently, India hosts three listed office REITs: Brookfield India REIT, Mindspace REIT, and Embassy REIT, collectively representing approximately 9% of the total office supply as of September 30, 2023.
Despite challenges such as high vacancies in SEZ (Special Economic Zone) space post removal of direct tax benefits, office REITs maintain a healthy occupancy rate of around 84%, with SEZ space accounting for 64% of the operational REIT portfolio. ICRA anticipates a revival in SEZ attractiveness in the medium term, thanks to the Government of India's recent announcement allowing partial and floor-wise denotification of IT-SEZs.
ICRA maintains a stable outlook on India’s commercial office sector, citing the nation's appeal as a preferred destination for global capability centres (GCCs). Fueled by favourable demographics, a skilled and cost-effective talent pool, and the availability of high-quality office spaces at competitive rentals, the Indian office portfolio is poised for continued demand growth in the medium to long term.
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