Embassy Office Parks REITs, the largest office real estate investment trust in Asia by area, has revised its guidance upwards in FY22 post the office leasing market witnessing a “strong revival” as Covid recedes and return-to-office trends strengthen.

The real estate investment trust (REIT) – India’s first listed one – upped leasing guidance to one million square feet for FY22, while the net operating income (NOI) is expected to clock ₹2,450 crore and distribution per unit (DPU) will be around ₹21.70 per unit.

It had a guidance of 4,00,000 square feet of space post the Q1 FY22 results. During the nine-month period (April to December) it completed new leasing of 7,00,000 square feet. On the NOI front, the previous guidance was ₹2,350 crore, while DPU was ₹21.50 per unit.

Short-term blips

According to Michael Holland, CEO, Embassy REIT, Omicron caused some short-term blips. But the upward revision in guidance reflects “the positive uptick in leasing activity” and improvement in various business segments of the company.

“Our current deal pipeline (in Q4 FY22) stands at 4,00,000 sq ft. So, we are raising our guidance and are now targeting to achieve over one million sq ft of new leasing for the full year,” Holland told BusinessLine

“We have also raised our full year NOI and DPU guidance to ₹2,450 crore and a mid-point DPU of ₹21.70 per unit for the full year FY22, both within a tighter range of +/- 1.5 per cent. This translates into a 3 per cent increase compared to our previous NOI guidance,” he added.

Rentals are also witnessing a “strong support” driven by increased hiring in the IT space and demand for “institutional grade properties” increasing significantly. Collections have remained robust at over 99 per cent.

Multiple occupiers have also retracted their previous exit or downsize notices and, in few cases where occupiers already exited during the pandemic, they are now looking to re-lease space with Embassy REIT.

Office market

The Indian office market is well on its way to a demand rebound with improving business sentiments, increased offshoring and robust hiring, especially in the tech sector. As per independent market research reports, calendar 2021 saw a gross absorption of 38 million sq ft across India, with October to December alone contributing to half of this.

“With 24 million square feet of RFPs currently active in our four markets, we expect a continuation of this recovery trajectory, and Bengaluru is expected to be at the forefront of India office demand recovery given its well-established tech and start-up ecosystem,” he added.

Bengaluru accounts for over 60 per cent of active pan-India RFPs.

Embassy REIT has occupancy of 87 per cent, across 200-odd corporate clients, with a total operating area of 33.6 million sq ft.

Growth Opportunities

According to Holland, the REIT will look at acquisition opportunities “mostly in the top 6 metros in India” while it would invest towards developing four hotels within the existing area it already manages.

Construction is ongoing for 4.6 million sq ft on-campus projects and two upcoming buildings –at Embassy Manyata and TechZone parks – which have a space of 1.9 million sq ft., and is likely to be delivered by FY22.

“We are on-track for a March and May launch of our 619-keys dual-branded Hilton hotels at Embassy Manyata (in Bengaluru). The hotel has finalized long term contracts with over 50 corporates, and further discussions are underway,” he said.

Embassy REIT’s two operational hotels turned EBITDA positive in Q3 FY22. While there could be “impact of Omicron” on Q4 numbers for the hotels, “the underlying trend continues to be positive”.