With a market capitalization of $8 billion, three office REITs collectively hold approximately 100 million square feet (MSF) of office space, translating to around 12.5% of the total office stock in India.
Positive momentum is evident across all metrics of office demand within the nation, and real estate investment trusts (REITs) are aggressively broadening their portfolios mainly through strategic acquisitions.
Since its inception in 2019, Embassy Office Parks REIT has significantly ramped up its presence from just over 24 million square feet to a remarkable figure of 45 million square feet, marking an impressive increase of 47% within five years. This leap includes the addition of 12 million square feet through various acquisitions, propelling its gross leasable area further upward.
The trio of office REITs—Embassy REIT, Brookfield India Real Estate Trust, and Mindspace Business Parks REIT—now jointly oversee nearly 100 million square feet of office space, encapsulating 12.5% of the total office stock in India, backed by a solid market capitalization of $8 billion.
The demand in India’s office sector is surging at double-digit rates, with monthly rental square footage nearing the Rs 100 milestone and occupancy rates climbing into the mid-80s. What stands out is the heightened interest of global capability centers (GCCs) in India, with approximately 800 GCCs anticipated to come online over the next six to seven years, thereby amplifying the demand for office spaces dramatically.
Acquisitions
The acquisitions by Embassy REIT predominantly originate from its sponsor, the Embassy Group based in Bengaluru. The company recently expanded into Chennai with the acquisition of a 5 MSF business park, propelling its total portfolio beyond the 50 MSF milestone. Additionally, it boasts a future development area of 2 MSF.
Brookfield REIT saw an impressive 47% increase in its operating area last year, spearheaded by acquisitions, with expectations for a further 16% rise following a recently announced acquisition. During FY24, the REIT secured 6.5 million square feet of space located within the National Capital Region and Mumbai, and it is strategizing to gain an additional 3.3 million square feet by acquiring Bharti Enterprises' 50% interest in a joint venture with its parent company, Brookfield. Moreover, Brookfield holds the first right to offer on the remaining stake, with other properties developed by Bharti Realty in Delhi also positioning themselves as potential targets for acquisition.
Brookfield's parent company owns an expansive 54 million square feet of office space in India, which elucidates a substantial opportunity pipeline for the REIT.
Last year, Mindspace REIT undertook two moderate acquisitions in Chennai and Pune, simultaneously working on a mixed-use asset for its sponsor in Mumbai. Notably, it holds the right to first offer on additional assets under its sponsor's wing. K Raheja Corp, the sponsor, has around 15 million square feet of pipeline comprising completed or in-development assets, presenting substantial prospects for growth as the REIT delves into third-party assets as well.
A fresh report from CREDAI-CRE Matrix highlights that office demand in India is projected to surpass 70 million square feet by 2024. This surge is anticipated to result from the government's initiatives in amplifying manufacturing capabilities alongside investments in both digital and physical infrastructure, ultimately boosting office absorption and spawning new opportunities for REITs.