Real Estate Investment Trusts (REITs) in India have gained significant popularity, attracting renowned institutional and anchor investors. India's growing office market and the diversification brought by retail asset-led REIT IPOs have paved the way for more REITs across different asset classes. REITs offer retail investors an opportunity to invest in real estate with smaller denominations, organized platforms, cost savings, tax benefits, liquidity, and expert guidance. According to data from JLL, India has over 393.7 million square feet of Grade A office space that generates rental income and is valued at over $61 billion, making it suitable for listing on REITs in the future.
During the pandemic period, it is significant that two REITs garnered a positive reception, indicating the growing popularity of this investment offering. Renowned institutional and anchor investors were drawn to these listings because they offered reliable rental income-producing properties supported by distinguished developer and asset management brands.
India's growing office market and transparent REIT implementation have attracted major financial institutions to these listings. REITs' strong reviews prove that transparent, professionally managed investments offer informed choices. The retail asset-led REIT IPO is ground-breaking, bringing diversification to India's real estate market and paving the way for more REITs across asset classes.
REITs in India offer mutual fund-like real estate investments. Listed REITs have addressed challenges for retail investors in commercial real estate. REITs offer diversified investment in real estate across various assets and locations, with smaller denominations and organized platforms. REITs provide cost savings, tax benefits, liquidity, expert guidance, transparency, and accountability.
Office space investments from institutions reached US$28 billion between 2005 and 2022, representing a 42 percent share of all real estate investments. India's first REIT listings were mostly office assets.
Moving ahead, India's premium office space has $61 billion worth of REIT-worthy assets across seven major cities, totalling 393.7 million square feet. Bengaluru (32 percent), Delhi NCR (15 percent), and Mumbai (14 percent) dominate office space. The potential of REITs is dependent upon a variety of factors, including the size and quality of their assets, the patterns of ownership, and the levels of occupancy.
The managed office spaces overseen by REITs have undergone significant expansion. The square footage has increased by three times in the period from March 31, 2019, to March 31, 2023, rising from 24. 8 million square feet to 74. 4 million square feet. Over the past three years, REITs have experienced a notable boost in their earnings as they have been able to increase their lease rentals within their portfolios, demonstrating a compound annual growth rate (CAGR) of 5.5 percent. This outperforms the 2 percent growth shown by similar non-listed assets.
After the pandemic, there has been a strong surge in demand for retail and hotel services, leading to changes in the valuation of these assets. In recent years, warehousing has experienced noticeable expansion as global funds have gathered these assets through various platforms.
The Indian REIT industry has experienced notable triumphs. The Indian property market is set to benefit from the expansion of REITs as they foster a strong regulatory framework that promotes transparency and upholds high governance standards. This structure appeals to institutional investors, who generally invest through public market offerings, ultimately improving the market's liquidity.
This story was first published in Business Standard.
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