62 million square feet of Indian commercial space have been converted to REITs in the last decade and another 144 million square feet are to be converted over the next three to four years.
As India emerges from one of the world’s strictest Covid-19 lockdowns, the office and commercial real estate sector appears to have come through unscathed. Landlords have reported 95% to 99% rent collection rates through the pandemic, and the sector is now seeing a ramp-up in global private-equity attention.
In the last three months of 2020, Canada’s Brookfield Asset Management and New York’s Blackstone Group purchased $2 billion and $1.5 billion, respectively, of rent-yielding commercial properties in Indian metropolitan areas. Brookfield acquired 12.8 million square feet of office space in the single largest real estate deal in Indian history, and Blackstone picked up a 21 million-square-foot portfolio of properties. These included five completed office towers, four under construction, nine retail malls and two hotels, all from Prestige Estates, a leading developer of malls and offices in southern India. Blackstone’s objective is to turn these properties into REITs listed on domestic stock exchanges.
The two blockbuster deals came on top of $2 billion in smaller deals concluded by investors last year, taking foreign investment in Indian commercial real estate to $20 billion since 2011. Blackstone is now the largest owner of Indian commercial real estate, with close to $10 billion invested. The firm has already listed two REITs on domestic exchanges, including India’s first publicly traded REIT in April 2019; two more are slated to list in 2021.
The trend is now well established. According to global real estate consultants, Knight Frank, 62 million square feet of Indian commercial space have been converted to REITs in the last decade and another 144 million square feet held by foreign private equity, sovereign wealth and pension funds are to be converted over the next three to four years.
Two clear reasons underlie foreign-investor appetite for Indian commercial real estate. First, yields are close to 8% according to Bloomberg, compared with 3.5% to 5% in other big Indo-Pacific markets, which Indian properties are benchmarked against. Second, the rentals are underpinned by IT, fintech, pharmaceutical research and biotech companies: booming sectors that are considered stable tenants.