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Top 10 developers/funds own half of the REIT-worthy assets in the country

On September 14, 1960, US President, Dwight D. Eisenhower, signed new legislation to establish Real Estate Investment Trusts (REITs) in the country. Considered a landmark step, it revolutionised the real estate industry once and for all. REIT which combines the best of both real estate and stock market investing was born. It also brought the benefits of real estate investments to all retail investors, in addition to the institutional fund houses.

India story is no different than other developed markets such as the US. First proposed in 2014, India’s moment of reckoning finally came in March 2019 when it witnessed the launch and successful listing of its first REIT by Blackstone and Embassy. This has signalled the beginning of a new phase of Indian real estate. The Embassy Office Parks REIT portfolio of 32.6 mn sq ft comprises 24.2 mn sq ft of completed assets and 2.9 mn sq ft of under-construction office space. The rest (5.5 mn sq ft) is proposed development.

A closer look at REIT-worthy spaces in India indicates that the top ten developers/funds hold 50% share of potential REIT-worthy assets in the office segment. The top 20 have about 64% share. (Refer to the chart below)


% share
mnsq ft
TOP 10
TOP 20

Source: Real Estate Intelligence Service, JLL

Progressive regulations and robust investor interest have contributed to the success of REIT. As the market continues to mature like other global markets, REIT has a bright future in India.

What will be achieved?

Not surprisingly, top developers have shown an interest in listing their assets under REITs. While it provides them with an opportunity to list their rent-yielding assets, it also offers them an alternate funding mechanism and the much-needed liquidity.

The funds realized could be used to de-leverage their balance sheets or to expand their businesses. This, in turn, is likely to lead to the growth of Indian real estate in the long term. The formal process of REITs management will also help developers to improve professional standards, further leading to improved transparency.

Globally, large institutional investor groups such as pension and insurance funds, private equity funds, corporate and private wealth groups have led to the progressive growth of REITs across asset classes. Also, it has been observed that they have helped in making the market stronger and more stable. Foreign funds have shown their interest in Indian REITs market too.

Large foreign funds have expressed an interest to own a share of the Indian real estate pie. Nikko Am Straits Trading Asia, North Carolina Fund, Hwang Asia Pacific REITs and Infrastructure Fund, Eastspring Investments and Canada-based Sentry Global have received SEBI approval to invest in India as developers and real estate investors, revealing the underlying interest in REITs. Our research indicates that continuous institutional flow of funds has provided the initial momentum to REIT.

The current asset potential

JLL has assessed India’s office space market to understand the potential REIT-able assets in top seven cities. Detailed analysis based on asset ownership, size of the property, leased space and asset quality indicates the potential of 294 mn sq ft REIT-able office space valued at ~ USD 35 bn.

Within these assets, IT/IT-SEZ would account for an 88% share. Bengaluru tops the list of the cities with the most REIT-able assets at 97.8 mn sq ft which is worth USD 10.7 bn. Mumbai follows at 49.7 mn sq ft worth USD $8.6 bn of assets. That Mumbai with almost half the REIT-able space of Bengaluru commands a value almost close to that of the later can be attributed to higher capital values in Mumbai.

Of the total 47.8 mn sq ft of office space completion expected in 2019, a robust 71per cent is likely to be REIT-worthy. This could help REITs to gain from the upside in rentals as well as capital appreciation. We expect to see similar trends in 2020 and 2021. This includes projects by prominent developers with strong execution records.

The recent electoral mandate is expected to lend continuity and stability to the reform measures undertaken in the real estate sector, which would lead to more REITs in India.

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