Brookfield REIT Issue May Spur Investment, Demand In Indian Commercial Real Estate

Global investment firm Brookfield's proposal to launch Real Estate Investment Trusts public issue for raising over Rs 4,000 crore augurs well for the future of India's office market and will boost investment as well as demand-supply in this segment, according to realty experts.

Institutional as well as retail investors are likely to take positive view on the Brookfield issue, driven by successful listing of the first two real estate investment trusts— Embassy Office Parks and Mindspace Business Parks, they said.

While Embassy REIT raised Rs 4,750 crore in April last year, Mindspace raised Rs 4,500 crore in August this year through their issues.

Brookfield last week filed draft document with the Securities and Exchange Board of India to launch its REIT issue and monetise commercial real estate. It plans to list the REIT by end of this year.

In response to a PTI query on impact of Brookfield's proposed REIT issue on commercial real estate, top real estate consultants and players said this demonstrates the strength of the office market.

Anshuman Magazine, chairman and chief executive officer (India, South East Asia, Middle East and Africa), CBRE, said the REIT continues to be viewed as one of the favoured investment avenues given the comparatively resilient underlying cash flows.

"We are hopeful that investors will look at REITs as a stable income generator, driven by strong occupancies in India's office market backed by lease commitments from corporate occupiers. This should also structurally drive office absorption and create opportunities across the commercial real estate market moving forward," he added.

Anarock Chairman Anuj Puri said the successful launch of India's second REIT (Mindspace) despite the ongoing pandemic has sent out positive signals and paved the way for others to follow suit.

"The major positive of the recent listing is that the geographical spread of the overall REIT portfolios has been widened. While Embassy REIT largely focused on southern markets and K Raheja towards the western market, the Brookfield REIT has assets in the north and eastern region," he said.

According to JLL India CEO and Country Head Ramesh Nair, with the success of Embassy and Mindspace REITs, the interest from both institutional and retail players is expected to be very positive. "REITs not only offer quarterly dividends, but also growth in capital values."

He said the only concerns that investors may have at this stage could be rental escalations and mark to market opportunities.

Mumbai-based Kalpataru Ltd.'s Managing Director Parag Munot said: "It augurs well for Indian commercial real estate and will enthuse more developers to enter into premium commercial real estate development."

Nidhi Marwah, managing director – South Asia & GCC – The Executive Centre, said the industry has witnessed the encouraging performance of both Raheja REIT and Embassy REIT in the backdrop of a global pandemic and economic instability.

"Brookfield would be the third REIT to be listed in recent times. This will further embolden the industry, taking us one step closer to a post-Covid market," she said.

Hong Kong-based TEC provides premium serviced office to corporates.

Shishir Baijal, chairman and managing director at Knight Frank India, said the Brookfield filing for REITs is a great indicator of the strong future that commercial real estate has in India.

"After the successful listing of Embassy and Mindspace REITs, this rides high on the long-term investor confidence. REITs will help raise capital and improve the fund flows into the sector as well as allow greater participation from retail investors in the asset class," he said.

Baijal expects more players to enter the REITs market to monetise their office assets.

According to Savills India CEO Anurag Mathur, "the listing of two REITs and now the upcoming third one by Brookfield clearly demonstrates that the long-term hope on commercial office market remains strong and that investors have far greater faith in such organised investment tool as compared to investing in physical real estate."

He said it re-enforces REITs as a viable investment alternative and re-affirms the strength of the commercial office real estate.

Mathur said the past two performances have also instilled confidence among investors of REITs being a viable investment option.

"Most importantly, it has also opened up new avenues for retail investors to own a piece of real estate by shelling out a small amount which would not have been possible otherwise," he added.

Piyush Gupta, MD capital markets and investment services at Colliers International India, said the commercial real estate segment continues to show strong interest from domestic and international investors.

Saurabh Shatdal, MD-capital markets at Cushman and Wakefield, said, the REIT listings provide a great avenue for grade A asset development as a defined exit route for all local players is being established.

According to Tushar Mittal, MD at Studiokon Ventures, which is into designing of office interiors, said India is emerging as the most attractive and cost-efficient destination for MNCs.

"Given the talent pool and tech savvy generation, demand for grade-A office is expected to increase, once we overcome the coronavirus pandemic. This shift in demand will work to the advantage of REIT and the commercial real estate ecosystem," Mittal said.

Shrinivas Rao, CEO-APAC, Vestian said the possible impact of Covid-19 on Brookfield's office portfolio will certainly make it an interesting REIT offering for the analysts to take a call on.

Net office space leasing stood at an all-time high of 45-50 million square feet in 2019 but the absorption is expected to fall 30-50% this year due to Covid-19 pandemic.

REIT, a popular instrument globally, was introduced in India a few years ago aimed at attracting investment in the real estate sector by monetising rent-yielding assets. It helps unlock the massive value of real estate assets and enable retail participation.