The vaccination campaign is gaining significant momentum, showing a clear increase in commercial activity. Many companies have begun remodeling their offices – at least in a hybrid model. Due to this, Real Estate Investment Trusts (REITs) which have exposure to commercial properties have also started taking the plunge.
Despite the pandemic, REITs has shown decent growth in the last two years. “During the Covid 19 phase, two out of three REITs got listed and performed well,” said Piyush Gupta, managing director, Capital Markets and Investment Services, Colliers India.
Most of the large tenants have not vacated their positions, due to which vacancies in REITs have moderated, he said, adding, “Further policy changes by the government, including allowing FPIs to invest in debt finance, also improves investor confidence.” And a new source of funding for REITs.”
However, “if not for the second wave in the first quarter of the current financial year, the growth would have been higher,” informed Anuj Puri, Chairman – ANAROCK Group.
How has the market recovered since the pandemic?
Both Gupta and Puri are of the opinion that office leasing has once again gained momentum. According to Colliers India, office leasing grew by 89% in Q3 2021 as compared to Q3 2020.
In H1 FY22, net absorption in the top 7 cities was 10.76 million sq ft – 53% lower than in H1 FY20 (pre-pandemic period). Meanwhile, the completion of the new office has picked up pace and has already exceeded pre-Covid levels by over 2%, ANAROCK research showed.
“New area of 22.2 million sq ft was completed in H1 FY22. As a result, office vacancies have increased by 2.60% in top 7 cities.”
As mentioned, southern cities such as Bengaluru, Hyderabad and Chennai saw the highest growth in office vacancies among the top 7 cities – 4.2%, 3.9% and 2.78 respectively in H1 FY2012 over the same period in FY12 % has increased. In contrast, Pune and Kolkata saw a decrease in the level of office vacancies during the same period, Puri said, quoting ANAROCK research.
How has RITS performed?
- Embassy Office Park REIT reported 12% growth in its NOI in the third quarter of 2021 on a year-on-year basis with 10% growth in revenue for the same period.
- Brookfield India REIT also saw a 4% year-on-year growth in its NOI in the third quarter of 2021.
- Dividend distributions for all three REITs have been above 6%.
- Rental collections for REITs have been over 99% indicating a strong recovery.
(Collier India data shown)
However, Gupta added, “The occupier experience has become extremely important. User experience will determine brand loyalty in this highly competitive segment.”
“Incorporation of digital infrastructure and smart features will enhance operational efficiency and overall asset value”
How will the market change going forward?
The IT/ITES sector has been on a hiring spree in 2020 and 2021 largely due to business, Puri said, adding, “To accommodate these employees in the future when we look at the gradual withdrawal of employees and the growth of the infotech giants. by adopting hybrid workplace practices. The demand for office space will increase in 2022 and 2023.
Meanwhile, Gupta pointed out, as a hybrid model of working takes shape, occupiers are looking at decentralized teams, work from home (near-home), and hub-and-spoke models. Co-working spaces are filling this gap and providing employees with collaborative workspaces
“Initially, the development of co-working spaces was limited to the top 6 cities. However, post the pandemic, operators are expanding to Tier-II cities. We are now seeing large enterprises setting up satellites and sales offices in smaller cities.”
“We expect this trend to continue and the demand for fintech to increase over the next two years,” Gupta concluded.
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