Secondary business districts, and not CBDs, have more Grade A office space worthy of REITs

• Among secondary business districts (SBDs), Hyderabad has the largest portion of REIT-worthy stock, followed by Bengaluru.
  
• Currently, the three listed office REITs collectively own about 74.4 million sq ft of office space – accounting for about 11% of the total Grade A office stock available.
  
• The market capitalisation of listed REITs in India is less than 10% compared with countries like the USA and Singapore.
  

About two-thirds of the Grade A office space suitable for real estate investment trusts (REITs) is located in the secondary business districts (SBDs) of the top six cities in India. Among these SBDs, Hyderabad has the largest portion of REIT-worthy stock – accounting for 28%, followed by Bengaluru at 24%, according to analysis by real estate management firm Colliers.

Moreover, over 60% of the Grade A office space within SBDs is considered suitable for REIT investment. In contrast, about half of the Grade A office space in the peripheral business districts (PBDs) across the top six cities is deemed REIT-worthy. The central business districts (CBDs) have a relatively lower share of REIT-worthy stock – standing at 10% – mainly due to limited new supply and the presence of older buildings.

Currently, the three listed office REITs collectively own about 74.4 million sq ft of office space – which accounts for approximately 11% of the total Grade A office stock available. Embassy Office Parks REIT, Mindspace Business Parks REIT, and Brookfield India Real Estate Trust are listed on the stock exchange.

The office sector, particularly in the top six cities, has demonstrated resilience with high occupancy rates, despite external factors impacting demand.

Huge potential for growth

In Q1 2023, office vacancy levels remained steady at 16.4%, indicating a robust commercial office market. The outlook for the office sector is positive, driven by technology, and flexible workspace trends – with the market projected to recover further in the latter part of the year.

Says Piyush Gupta, managing director, capital markets and investment services, Colliers India, “REITs in India are still at their early stages compared to other regional markets. Strikingly, the market capitalisation of Indian REITs is <10% compared to the USA, Singapore, and other countries in the APAC (Asia-Pacific).”

“Considering the size of the Indian office market, there exists a huge potential for more number of REITs and expansion of current REITs,” he added.


Currently, the REIT penetration rate in India stands at 11%, leaving ample room for expansion up to 68%, aligning with other APAC countries like Singapore and Japan – where over 50% of their office portfolios are held under REITs.