Indian commercial real estate offers investment opportunity worth USD 43 - 54 billion (INR 2,88,758 crore-INR 3,60,948 crore) across the top 8 cities via REIT-eligible ready stocks as per RICS and Cushman & Wakefield report entitled “Commercial Real Estate: Steering Growth in Indian Cities”. The report was released at RICS Real Estate Conference 2016 – “Commercial Real Estate: Corporate Catalyst” with Cushman & Wakefield as research partners for the conference. A key focus of the conference discussions was evolving occupier demand, REITs and international standards.
The report estimates that the value of REIT-eligible stock is seen to be the highest in Bengaluru (USD 15.8 billion )/INR 1,05,213 crore) primarily due to the high volume of investible Grade developments. Mumbai (USD 14.5 billion/INR 96,461 crore) comes a close second due to higher capital values of commercial properties, despite having roughly half of Bengaluru’s REIT-able stock. The estimated value of REIT –eligible stock in NCR is USD 11.04 billion / 73,423 crores which is the third highest. Further, it is estimated that approximately 315 million square feet (msf) of office inventory is eligible for REIT across the cities. The REIT-eligible inventory includes existing non-strata sold Grade A inventory, wherein Bengaluru, Mumbai and Delhi-NCR cumulatively account for over 67%.
Sanjay Dutt, Managing Director, India, Cushman & Wakefield said “REITs can provide a huge opportunity for developers and investors in India given the potential in the Indian real estate market. REITs would help developers resolve their fund-raising issues and allow them to focus on completing their projects in a timely manner. Apart from the top 3 cities, Chennai and Pune have immense scope for REITs with approximately 34 msf each of REITS-eligible stock. Going forward, by the end of 2017, Hyderabad’s REIT-able stock is expected to reach approximately 41 msf. This would place Hyderabad’s REIT-able stock at 4th place, surpassing that of Chennai and Pune. With investor and occupier interests rising in Hyderabad, a high number of Grade A projects are likely to be completed enabling high REIT-able stock.
Apart from the office sector, the retail sector too has high potential to generate rental income for investors. Since last year, private-equity firms have shown interest in investing in malls in India, indicating that there is ascertain attractiveness in the retail shopping centre space owing to future prospects.”
Of the REIT-eligible stock across the 8 cities, Bengaluru has over 100 msf of REIT-eligible stock (33% of total REIT-able stock), more than double of that of Mumbai. Approximately 75% of the total (all grades) office stock in Bengaluru is eligible for REIT investments. Delhi-NCR (56 msf) and Mumbai (51 msf) are expected to follow Bengaluru in terms of REIT-able stock as of Q1 2016. REITs once implemented in India would enable investors to generate a stable source of income and also earn profits by trading the units of REITs, thereby increasing the attractiveness of REITs as investing medium. With the government exempting Dividend Distribution Tax (DDT) for Special Purpose Vehicle (SPV) of REITS in the Union Budget, the investment vehicle is likely to be more attractive for investors.
MALL STOCK OF 39 MSF ELIGIBLE FOR REIT INVESTMENT IN INDIA
The top 8 cities have REIT-eligible mall supply of approximately 39 msf, with Bengaluru, Delhi-NCR and Mumbai together accounting for about 64% of the retail inventory. Owing to the presence of large mall developers in Delhi-NCR, Mumbai and Bengaluru that operate some of the best malls in India, investors are likely to concentrate their investments in these cities. Mumbai (11 msf) has the highest stock of REIT-able malls i.e. non-strata sold grade A malls followed by Delhi NCR (7.4 msf) and Bengaluru (6.5 msf). The entry of higher number of foreign brands over the years would likely spur the requirement of quality malls in major cities. Going forward, there is over 25 msf of malls space that is currently under construction across the eight cities and is expected to get operational by 2018. These malls would provide investors with an array of investment options in the retail asset class.
HIGH PRE-COMMITMENTS SEEN IN MARKET
Overall, the commercial office space is witnessing high pre-commitment levels in the last couple of years. Companies in sectors such as IT-ITES, Pharmaceuticals & Healthcare sectors are signing-up space for future take-up, amidst limited quality grade A supply in select locations.During the year 2015, pre-commitment levels across the top 8 cities were witnessed at 11.8 msf, a 9% increase over 2014 levels; and a 71% increase from 2012 levels. In Q1 2016 alone, 4.6 msf of pre-commitment were witnessed, with Bengaluru and Hyderabad leading the way.
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