May 2: The small and medium (SM) REIT-ready office spaces are estimated at 52-53 million square foot (msf), indicating a healthy potential for SM REIT listings in the commercial office space, mentions the April edition of the ICRA report.
According to the ICRA report, as of December 2023, the total Grade A office supply stood at 980 msf and Grade B office at 115 msf across the top seven cities.
ICRA has maintained a stable outlook on India’s commercial office sector. According to the report, with a healthy demand from global capability centres (GCCs), non-IT MNCs and domestic corporates, the net absorption across the top six cities is expected to grow by 4-5% in FY2025, after a decline of 19-20% to 47-48 msf in FY2024. With the influx of a huge supply of around 60-62 msf in FY2025, the vacancy levels are expected to remain at around 16.0-16.2% (largely similar to the previous year).
ICRA estimates SM REIT-ready office space at 52-53 msf (3% of Grade A supply and 20% of grade B supply), indicating a healthy potential for SM REIT listings in the commercial office space.
The report highlighted that at a cap rate of 8-8.5%, SM REIT-ready office space provides monetisation opportunity of Rs 67,000 – 71,000 crore across top seven cities.
According to the ICRA report, Bangalore, which already leads in total office supply in India, also has the highest REIT-ready office space with 158 msf, followed by MMR (83 msf) and Hyderabad (78 msf). Though Hyderabad leads marginally in REIT-ready space, due to higher weighted average rental rates in Delhi-NCR, the investment opportunity requirement is greater in Delhi-NCR, it mentioned.
Investment for REIT-ready office space
According to Rajeshwar Burla, senior vice-president and group head – corporate ratings, ICRA, “Small and Medium REITs will provide an opportunity for small Grade A and most of the Grade B office developers to monetise their investments. Also, fractional ownership platforms (FOPs) are expected to be formalised, leading to wider market acceptance. However, the minimum unitholding requirement for SM REITs could act as a deterrent from a scalability perspective.”
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With 16+ years of experience in various sectors, of which more than ten years in real estate, Anuradha Ramamirtham excels in tracking property trends and simplifying housing-related topics such as Rera, housing lottery, etc. Her diverse background includes roles at Times Property, Tech Target India, Indiantelevision.com and ITNation. Anuradha holds a PG Diploma degree in Journalism from KC College and has done BSc (IT) from SIES. In her leisure time, she enjoys singing and travelling.
Email: anuradha.ramamirtham@housing.com
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