- ‘Embassy REIT’, has issued up to 158 million units at a price of INR 300 per unit aggregating up to INR 4,750 crores
- The Embassy REIT has already raised INR 876 crores from strategic investors and INR 1,743 crores from anchor[1] investors
- The total space take-up in the country reached an all-time high of about 47.4 million sq. ft. in 2018 recording a growth of 5.3% y-o-y
- As per CBRE India Office Occupier Survey 2019, more than 80% of the corporates look forward to expanding their footprint in India (both in terms of headcount and portfolio) in the next two years; which augurs well for the future of office space demand in the country
New Delhi, 19th March 2019: Marking a major milestone in the Indian real estate sector, ‘Embassy Office Parks’, a joint venture between the real estate company Embassy and private equity firm Blackstone has launched the country’s first Real Estate Investment Trust (REIT). Termed as ‘Embassy REIT’, the trust has issued up to 158 million units at a price of INR 300 per unit aggregating up to INR 4,750 crores. The key stakeholders of the ‘Embassy REIT’ includes Axis Bank (the trustee), Embassy Office Parks (the manager), Embassy (the sponsor) and Blackstone (the sponsor). The Embassy REIT has already raised INR 876 crores from strategic investors which include SMALLCAP World Fund, New World Fund, amongst others and INR 1,743 crores from anchor[1] investors which include Capital group, Citigroup and Wells Fargo, amongst others.
The property portfolio of Embassy Office Parks in India comprises of seven best-in-class office parks and four prime city-center office buildings adding to a total leasable area of 32.7 million sq. ft. The portfolio is spread across the best performing markets in the country such as Bengaluru (17.2 million sq. ft.), Pune (8.9 million sq. ft.), Mumbai (2.1 million sq. ft.) and Noida (4.7 million sq. ft.). Additionally, the portfolio also comprises of two operational hotels, two under-construction hotels and one operational solar park.
Anshuman Magazine, Chairman and CEO, India, South-east Asia, Middle East and Africa, CBRE
India offers major advantages for REITs including availability of a wide variety of quality assets, sustained government support in easing regulations, a wide investor base, and opportunities for capital appreciation, among others. Hence, it is likely that India's first REIT will be successful and will help elevate investor sentiments in the country’s real estate market.
Improved investor sentiments in office assets is likely to generate a potential fundraising avenue for developers and also propel major corporations to lease / purchase space in quality buildings. While the office sector is expected to dominate REIT listings initially, it is expected to be followed by retail and logistics sector in the long-run, thereby opening up avenues for the real estate sector at large.
Rami Kaushal, MD-Consulting and Valuation services, CBRE India said, “A successful REIT listing would further prompt the entry of other asset-holding companies to issue their own offerings, thereby widening the REIT market size. The take-off of REITs in India is also expected to open a new investment avenue for retail investors by allowing them to invest in the commercial property market with a minimum amount of just INR 2 lakh – which is much more feasible than investing in a physical asset.
How have REITs performed globally and where does India stand?
Globally, over 30 countries have already launched REITs and the United States (US) is the most mature market in terms of the REIT regime. The US is followed by other markets such as Australia, Belgium, Canada, France, Germany, Japan, Netherlands, New Zealand and the United Kingdom.
Many countries in the APAC region also have active REIT markets and while the APAC REIT market size is much smaller than the US, it also offers vast untapped opportunities. The market capitalization of APAC Real Estate Operating Companies (REOC) is higher than the US, indicating that there is enough room for APAC REOCs to spin off their investment properties into REITs.
REITs in APAC accounted for about 15-20% of the total investment turnover in these countries over the past five years. In 2018, the total acquisitions undertaken by REITs in APAC reached US$ 22.5 billion, resulting in a share of about 18% of the total investment turnover.
While REITs have proven to be a viable opportunity for alternative investments, with successful track records in APAC countries, Japan and Singapore in particular, have achieved the largest REIT market capitalization in the region.
Though the transaction volume in India is yet to gain traction comparable to the other global economies, the first REIT listing in India is likely to catalyze investments in the country and also stimulate prospective growth of APAC REITS in the years to come.
| Market | Investment Transaction Volume 2018* (US$ billion) |
| Japan | 24.6 |
| Hong Kong | 18.0 |
| Singapore | 8.3 |
| Australia | 19.1 |
| U.S. | 534.8*** |
| India | 5.0*** |
The brighter side of India’s Commercial Real Estate Market
Over the past few years, the office market in India has been going through a healthy makeover both in terms of occupier demand and development completions. The total space take-up in the country reached an all-time high of about 47.4 million sq. ft. in 2018 recording a growth of 5.3% y-o-y. Bangalore, followed by NCR, Hyderabad and Mumbai dominated office leasing on an annual basis, accounting for almost 80% of the overall space take-up. Tech corporates, engineering and manufacturing and BFSI companies have been the key propellers of leasing demand. Corporates also remain bullish on their future expansion plans in India. As per CBRE India Office Occupier Survey 2019, more than 80% of the corporates look forward to expanding their footprint in India (both in terms of headcount and portfolio) in the next two years; which augurs well for the future of office space demand in the country. This increase in demand has also fuelled development activities in key cities. The total office stock in the country has crossed 580 million sq. ft. as on Q4 2018. Further, more than 100 million sq. ft. of space is lined-up for completion over 2019-2021.
The robust growth in commercial real estate has had an encouraging impact on rental growth and yields, thereby positively impacting the viability of a REIT in the Indian scenario. Southern cities, including Bengaluru, Hyderabad and Chennai witnessed rental increment across key micro-markets in the range of 5 - 10% y-o-y in 2018. NCR, Mumbai and Pune also witnessed a rise of about 2 – 5 % y-o-y, albeit in key locations.
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