After four years since the listing of the first real estate investment trust (REIT) in India, three office-based REITs listed in the stock markets have been underperforming while the sluggish decision-making process by prospective office occupiers is exerting pressure on near- and medium-term recovery.

The slowdown in the US and Europe, from where most of the demand emanates, has resulted in low overall demand for office space in India. Despite optimistic commentaries from individual REITs, analysts and consultants are expecting that demand will pick up only in FY25.

“The market is witnessing delayed decision-making due to the global economic headwinds, impacting office space sector,” said Lata Pillai, Senior Managing Director, and Head of Capital Markets, JLL India.

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The three office-based REITs, with a combined market cap close to ₹54,000 crore as on June 23, are trading either close to or well below their respective issue prices. Over a 52-week period, the REITs have fallen in the range of 14.0-20.3 per cent while the Nifty Realty index has appreciated 32.3 per cent.

US investment bank Jefferies has recently said that REITs have been flat since hitting a bottom in March while the realty index has rallied over 30 per cent. It further pointed out that valuations of REITs were near their lows and yields were just above G-Secs.

According to Cushman & Wakefield, around 14 per cent of India’s office stock is owned by REITs. The total completed office stock in the top seven cities of India is estimated at 750 million square feet.

For the three office REITs, the technology sector on an average accounted for 43 per cent of the REIT tenant revenue while the BFSI sector accounted for around 17 per cent revenue, per JLL India.

Office Vacancies

The main challenge that REITs are facing is getting prospective tenants to sign on the dotted line and close out the deals, especially for larger spaces.

An industry official, who did not wish to be named, said that global captive companies are taking up only “the bare minimum required” space, despite continuing with hiring.

The office take up has not been commensurate with new hiring and this has been the state of affairs since 2020, with the gap widening over the last year or so.

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The source added that dialogues with companies indicated requirements for large spaces, but they were opting for smaller spaces to give themselves room for flexibility.

“Everyone is seeing challenges ... (in leasing of office space) but none of the REITs are at a place where it alters their business plans significantly,” said Nikhil Naredi, Partner at law firm Shardul Amarchand Mangaldas.

According to Cushman & Wakefield, vacancy levels at Grade A offices across India have risen to 17.4 per cent at the end of March from 15.2 per cent prevailing prior to Covid.

In a recent report on the office sector in the APAC region, it pointed out that vacancies are on an upward trajectory in the region’s top 25 cities.

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“In absolute terms, vacancies are highly concentrated in India’s top eight cities, accounting for 43 per cent of the region’s total,” the report said.

All the three REITs’ vacancies rose 2-7 percentage points between December 2019 and March 2023. Mindspace Business Parks REIT’s occupancy level saw a 30 basis points sequential decline to 83.4 per cent at the end of March.

The uncertainty surrounding leasing decisions by large global capability centres led Embassy Office Parks REIT to not to give any guidance on distribution for FY24, and neither did Brookfield India Real Estate Trust.


Any firm direction for the office market sector is likely emerge only after a quarter or so.

“The growth of offshoring, driven largely by global capability centres in various segments, is likely to aid upcoming office market activity,” Pillai said.

Naredi pointed out that, despite the slowdown, the REITs are shoring up their portfolios while SEBI “wants to make this product a success, so a lot of regulatory dialogues are taking place.”

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The three REITs currently have around 75 msf of completed area and this is expected to rise to 96 msf by the end of FY25. They also have over 50 msf of ROFO assets from their respective sponsors in the pipeline.

Pillai pointed out that India’s position as a leader in the global tech ecosystem would enable it to ride out the current slowdown.

“There is no crash landing of the US economy,” said Vivek Rathi, Director of Research at Knight Frank India, adding that IT companies will be signing up for space but would want to maintain flexibility.