The global real estate service firm said $36 billion worth of real estate is suitable to be listed under REITs. India currently has three listed REITs that are traded on bourses–Embassy Office Parks, Mindspace Business Parks and the recently listed Brookfield India Real Estate Trust.
“The continued success of listed REITs in India can be attributed to sponsor quality, track record and ability to stay transparent and deliver predictable returns. JLL believes that India’s current office markets across seven major cities have a potential space of 284 million sq. ft that could be securitised with an estimated value of $36 billion (Rs 2,62,800 crore),” said Samantak Das, Chief Economist and Head Research & REIS, JLL.
According to JLL, the number of buyers and sellers will broaden significantly with the listing of more REITS in India, further increasing market liquidity and yield compression, and the incentive to securitise property assets.
Bengaluru is identified as India’s largest source for potential assets available for securitisation, accounting for 31 per cent or 88 million sq ft of REIT worthy assets, valued at $11.16 billion (Rs 81,468 crore).
The city, with large IT spaces housing global occupiers, will be the most favoured market for newly listed REITs, given that most assets are singly owned by developers or large funds, allowing for the aggregation of assets into managed structures.
The pandemic has, however, decreased the attraction of REITs as they have not performed that well in recent times. Brookfield is down 8 per cent in the last one month. Mindspace has fallen 8 per cent in the last three months and Embassy 5 per cent in the same period. However, this is unlikely to dampen the pace of securitisation of assets, JLL believes.
“India’s REIT evolution has been both rapid and revolutionary for the real estate sector. The fact that the closing of transactions was made possible even amidst a pandemic has demonstrated the maturity of the market and transformed India’s real estate corporate finance landscape and market liquidity,” said Priyank Shah, Director, Capital Markets, Asia Pacific, JLL.
“Furthermore, we are encouraged by the larger domestic institutional investor participation in the more recent listings and the emergence of a public private arbitrage play welcomed by all investors in the market.”
There are opportunities for institutional investors to participate in this structural theme, potentially by assembling complementary portfolios for securitisation into REITs, or co-investing with existing platforms pre-IPO.
Several factors have given investors and regulators more confidence in the REIT space’s future in 2021 and into the future. The first two listed REITs’ healthy performance lowered the marginal cost of capital for Indian real estate. Additionally, REIT sponsors successfully recycled capital post-listing through asset divestments and rationalisation of their equity stakes, which raised institutional groups’ confidence to acquire larger portfolios, JLL said.