In these turbulent times, Embassy REIT’s business is resilient, starting the next phase of growth

Michael Holland, CEO, Embassy REIT, shares with BusinessLine his company’s conversations with space occupiers and the momentum coming back to offices. He says while return to normalcy will take time, these are all encouraging, positive and clear trends. Excerpts from the interview:

The clear and consistent downward trend in Covid-19 cases and deaths across India has continued since September 2020 and the great progress on the vaccine roll-out is having a positive impact on the levels of economic activity across urban India. Backed by this, we see continued ramp-up in the number of employees working from our properties. There was a 27 per cent increase in employees working from offices in Q3 FY21 compared Q2 FY21 and this upward trend has continued in January and February with a 25 per cent increase in 2021 YTD. Our conversations with occupiers also suggest that the momentum in the ‘back to office’ trends is accelerating. While return to normalcy will take time, these are all encouraging, positive and clear trends.

When we look across international office markets, it is clear that the Indian office market is unique. We are already seeing the uptick in leasing from early days of the pandemic and with the vaccine program gaining momentum, we remain positive on the growth trend and expect demand recovery to gain strength from the second half of this year. Relative to CY2020, property consultants are forecasting a 27 per cent increase in office demand (34 msf to 43 msf) for CY2021 and 50 per cent (34 msf to 51 msf) for CY2022. On the supply side, the two-year forward forecast is down 23 per cent YoY while vacancies have moved up only marginally from 14 per cent to 17 per cent pan-India YoY. Occupancy in our portfolio remains stable at over 90 per cent. Even through this pandemic year, our lease deals on a YTD basis have crossed over 1.0 msf across 37 deals and we’ve delivered rental increases of 13 per cent on 5.3 msf across 66 leases. This backdrop gives us the confidence to embark on our new construction programme with a capex of over ₹2,300 crore and delivery of 5.7 msf over the next three-four years. There is only 1.1 msf due to be delivered this year, which is already pre-leased to one of the leading global banks, JP Morgan. So, we are really well placed to match our supply timing with the expected bounce-back in demand later this year and on into 2022.

We remain of the view that more flexible, hybrid ways of working will influence the office of the future. We continue to believe in the strength of our key customer base, technology and global captive centres, and the globally unique talented Indian workforce looking for collaborative spaces for culture building and mentoring.

With the launch of the third listed REIT in India, it is clear that the domestic market, both investors and asset owners, now understand the REIT platform. With our conservative balance sheet combined with available liquidity and access to capital markets, both debt and equity, we are best placed and will continue to engage with developers and asset owners who are looking to consolidate with larger institutional quality landlords with strong balance sheets. Globally, REITs are very well established and is now a $2-trillion asset class. We believe that the mid-term indicators within India are positive and even through these turbulent times we have a unique, resilient business starting the next phase of our growth journey in India.

India is the Digital Talent Nation with a talent pool of 4.5m today. While global businesses become more tech dependent, and business execution becomes more geographically agnostic, our portfolio, with 43 per cent exposure to technology occupiers and a further 31per cent to global captive centres, stands to gain as global firms continue to look to India for innovation, R&D, delivery excellence and cost-efficient solutions driven by the availability of this highly-skilled talent pool. We reiterate our view that we are concentrated around the growth opportunity — the right macro trend — tech, customers and markets.

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