India offers prime office stock worth Rs 4.5 lakh crore to REITs: Report

New Delhi (The Uttam Hindu): India offers a whopping Rs 4.5 lakh crore worth of prime office stock for real estate investment trusts (REITs) to transform the commercial real estate investment landscape, according to a report on Tuesday. India’s REIT market is currently at a nascent stage compared to major global economies with only four listed REITs, covering an area of 125 million square feet across the retail and office markets.

According to a Vestian report, 60 per cent of India’s total Grade-A office space qualifies as REIT-worthy. Gradually, REITs are becoming popular among foreign and domestic investors owing to attractive returns in the form of dividends. Since their inception, REITs have distributed Rs 16,800 crore, more in dividends compared to the entire Nifty Realty Index. Despite producing better returns compared to the Nifty Realty Index, the market capitalisation of REITs remains relatively low. Among India’s top seven cities, Bengaluru leads the pack with 33 per cent share of the total REIT-worthy stock. It is followed by Hyderabad and NCR with 21 per cent and 15 per cent shares, respectively.

While Mumbai and Pune together account for 21 per cent of India's REIT-worthy stock, Chennai holds 10 per cent and Kolkata contributes a mere 1 per cent. "Nearly 67 per cent of the total REIT-worthy stock in India is green-certified, highlighting the increasing focus on sustainability among Grade-A developers,” said the report. Hyderabad boasts the highest proportion of REIT-worthy stock, accounting for approximately 74 per cent of the city’s total office inventory. The future of REITs in India looks promising with mutual funds and corporations gradually increasing their stakes in REITs, said the report.

Embassy REIT, Mindspace REIT, Brookfield India REIT, and Nexus Select Trust REIT generated returns of 24 per cent, 18 per cent, 6 per cent and 39 per cent, respectively since their inception. On the other hand, BSE Realty Index has provided higher returns (317 per cent in the past 66 months) compared to REITs. “However, favourable regulatory environment, better returns on investment, and a rapidly expanding office market are likely to provide impetus to the REITs market in India,” the report mentioned.