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A new commercial real estate investment trust (REIT) is being planned for launch in India's financial year 2025 (FY25). This could be a significant development for the Indian real estate market, potentially reaching a value of over INR 4 trillion (USD 48 billion) based on industry estimates.
The Blackstone Group, a major investment firm with a global portfolio exceeding US$900 billion, is collaborating with two Indian developers, Sattva Group and Panchshil Realty, to create this new REIT. If approved by regulators, it would be India's fourth commercial REIT. The proposed trust is expected to manage a portfolio exceeding 40 million square feet of commercial space, potentially making it the second-largest in South Asia after Embassy REIT, which currently holds the top spot with 45.4 million square feet.
REITs offer investors a way to invest in real estate without directly buying and managing properties. This can be a more accessible option for those interested in the potential benefits of real estate ownership, with potentially lower investment minimums compared to directly purchasing commercial buildings. The launch of this new REIT could provide more investment opportunities in India's commercial property sector, valued at an estimated INR 13.5 trillion (USD 162 billion) according to a recent report by JLL India.
Experts believe the office real estate market in India is set for a comeback in 2024, which could benefit REITs. Data from CBRE India shows that office space leasing reached 61.6 million square feet in 2023, reflecting a 7% increase compared to the previous year. This is the second-highest leasing volume recorded since 2019 when leasing reached 68 million square feet.
Another factor potentially favouring REITs is the expected change in interest rates. Piyush Gupta, a real estate market expert at Colliers India, believes that a potential decrease in interest rates could positively impact REIT prices. This is because REITs combine elements of both public markets and stable income investments, so their return on investment needs to be carefully considered compared to the stock market.
Before the arrival of this new player, let's explore the current landscape dominated by three established REITs. Currently the largest commercial REIT in India, the Embassy boasts a portfolio of 45.4 million square feet across office parks and buildings in key cities like Bengaluru, Mumbai, Pune, and the National Capital Region (NCR). Interestingly, Blackstone recently exited Embassy REIT in December 2023, potentially paving the way for their involvement in this new venture.
Established in 2019, Brookfield India REIT offers investors exposure to a mix of office and warehousing facilities. Their portfolio, concentrated primarily in Mumbai, Pune, Kolkata, and Bengaluru, currently stands at around 14 million square feet.
Launched in 2020, Mindspace REIT specializes in office spaces strategically located in prominent Indian cities like Mumbai, Pune, Hyderabad, Chennai, and Bengaluru. Their portfolio has grown to approximately 33 million square feet.
It's important to note that while not strictly a commercial REIT, Nexus Select Trust is India's first publicly listed retail REIT. Established in 2023, NST focuses on shopping malls and consumption centers across 14 Indian cities. Their portfolio currently umfasst (German for "comprises") approximately 10 million square feet of retail space.
The launch of this new commercial REIT could have a significant impact on India's real estate investment landscape. It could offer new avenues for investors while promoting growth in the commercial property sector. With the potential expansion of REITs into new asset classes like data centers (a rapidly growing market in India) and healthcare facilities, this market segment is expected to experience rapid development in the coming years.
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