Embassy Office Park REIT, the country’s largest real estate investment trust, is looking at a 20 per cent increase in leasing space to 6 million sq. ft. for FY24 on the back of improved conditions in its key market, Bengaluru, and stability in interest rates.
According to Aravind Maiya, CEO, Embassy REIT, while 4 million sq ft will be new leasing; 1.3 million sq ft is pre-commitment for future or upcoming projects; while 0.7 million sq ft will be renewals.
In Q1FY24, the company leased out 1.1 million sq ft and another 2 million sq ft is in the (leasing) pipeline, talks for which are in “advanced stages.”
Of the 1.1 million sq ft of space leased in the April–June period; 0.4 million sq ft will be new leasing; 0.45 million sq ft will be pre-leasing and the remaining 0.25 million sq ft will be renewables. Over 80 per cent of the new or pre-leasing came from existing occupiers and 71 per cent of demand was from global capability centres. Same store occupancy was 87 per cent.
“The Bengaluru market, where 75 per cent of our properties are located, is very robust; and the interest rate environment has stabilised. So we are looking at a 6 million sq ft leasing guidance for the current fiscal; while distribution is likely to be in the range of ₹20.50 – 22 per unit,” he told businessline during an interaction.
Embassy REIT is commanding a rental that is 5 – 6 per cent higher than the market.
Occupancies across properties are in the 85 per cent range; while in Bengaluru it is up at 94 per cent. In Mumbai, which accounts for 10 per cent of property spreads, the occupancy levels are around 91 per cent. Infrastructure drive in two other markets – Pune (where a Metro is proposed) and Noida (where Jewar airport is coming up) - is expected to help improve occupancies in the coming days.
No immediate acquisition plans
Embassy REIT, Maiya said, continues to evaluate acquisition opportunities in Chennai. However, “there are no immediate acquisition plans in the pipeline.” Higher cost of borrowings is seen as one of the major reasons for this decision.
Cost of debt is expected to be in the 7.9 per cent range for the fiscal, against the existing 7.3 per cent in Q1.
Nearly, ₹4,100 crore of debt refinancing will be due this fiscal, and these were financed at around 6.4 - 6.8 per cent. The current refinancing cost will be at around 8 per cent-odd now.
“So for us, the focus would be to increase leasing and drive up stock prices first,” he said.