A third REIT from India’s office market

In a fillip to India’s commercial real estate market, another Real Estate Investment Trust (REIT) listing is set to debut in the domestic public market next week. Canada’s alternative asset management firm, Brookfield Asset Management, which has real estate assets under management worth $6.6 billion across the country, will see the listing of its Brookfield India Real Estate Trust (Brookfield REIT) that has a net issue size of ₹3,800 crore. REITs are companies that own and operate income-generating commercial assets and their listing allows for retail investors to own a slice of the real estate pie, without physically owing an asset.

This would be the third REIT listing in the country, after the Embassy REIT and Mindspace Business Parks REIT—both of which are backed by private equity major Blackstone. The Brookfield REIT, though, will be the first 100% institutionally managed public commercial real estate vehicle, with a portfolio of 14 million sq. ft. of office space spread across Mumbai, the National Capital Region, and Kolkata.

The REIT potential in India is huge, with analysts pegging that REIT-compliant office spaces in the country add up to about 250 million sq. ft. Even if 50% of this space were to get listed, the estimates point to a total REIT listing worth $18.5 billion. “India’s office sector has witnessed continuous growth over the last four years with the average annual net absorption crossing 30 million sq. ft., leading to steady rentals and capital appreciation till the onset of the pandemic,” says Samantak Das, chief economist and head of research & REIS (India) of consultancy firm JLL.

But, while flexible working arrangements like work from home are here to stay, the office isn’t going away. In fact, during the Covid-19 enforced lockdown, India is said to have further strengthened its global leadership position in technology services for all major global corporations. “India worked as an efficient business continuity location over the last year,” says Kaku Nakhate, president and country head-India, Bank of America, which is the one of the lead book running lead managers for the Brookfield REIT listing. And the third quarter earrings of India’s IT giants TCS, Infosys, and Wipro are a testament to it.

“We saw a steady stream of high-end work shifting to India during the lockdown period. In a way the lockdown has helped India become strategically more important for MNCs who can get value-added work done from India,” adds Nakhate. She estimates that thousands of jobs in the areas of artificial intelligence, data science, and robotics are being created in the country.

“Global investors, looking for stable yields and regular returns, believe that the technology sector-driven office space demand is expected to grow further and keep absorption [of office space] robust,” adds Das. According to industry body Nasscom, the technology sector is poised to grow at 13% annually, resulting in a strong demand for high-quality office spaces.

The Brookfield REIT public issue opens on February 3 and closes on February 5; the issue price band is ₹274-₹275. According to Nakhate, the Brookfield REIT has a stable de-risk portfolio “with 75% of rentals coming from high-quality MNC tenants which have long-term leases with contractual escalations”. The net operating income of this REIT is projected to grow by a cumulative 25% over FY20 to FY23, she says.

Ankur Gupta, managing partner in Brookfield’s Real Estate Group and head of real estate in India, says there is a pipeline of assets—totalling 15 million sq. ft.—that can “contribute in an accretive manner” to growing the Brookfield REIT in the short- to medium-term. “The REIT provides a strong, solid initial yield of 7.95% and embedded growth of more than 6% over the next 12 months,” he adds.