REIT policy in India will ensure investment in commercial assets, says new survey

Investor-friendly reforms, positive sentiment following India's first REIT and firm market fundamentals will continue to steer investments into commercial property assets over the next 12 months, a recent survey said. According to a survey conducted by property consultant Colliers International, nearly 63 per cent of the investors interviewed opted for office assets as their top investment preference.

"Investors are confident about Indias robust commercial office market in 2019, even though the residential sector may see a slowdown. Investment in residential assets may be hampered due to the upcoming general elections and an ongoing crisis in the NBFC industry," Colliers International India managing director Joe Verghese said. He said the commercial office sector is on the upswing with top developers backed by global investors like Blackstone, Brookfield and GIC.

As per the survey, from 2014 to 2018, institutional investors invested in excess of USD 10 billion (around 7,000 crore) in office assets. This is driven in part by strong commercial office leasing, which touched a new peak in 2018 at 50.2 million sqft.

"We expect gross absorption to hover around 46.8 million sqft per year thorough 2021, ahead of the average annual leasing of 42.6 million sqft between 2014-2018," the report stated. Verghese further noted that some investors are aggregating assets with a view to list them as REITs, following the successful offering of the Embassy and Blackstone REITs which got listed on bourses on April 1.

"Investors are scouting for investment-ready assets in core office locations in Mumbai, Delhi-NCR, Bengaluru and Hyderabad, which together accounted for about 77 per cent of the total leasing in 2018," the report said. About 72 per cent of investors expect a return of higher than 16 per cent from office assets that are under construction.

"We foresee higher investor interest for greenfield projects in southern cities, especially Bengaluru and Hyderabad, which are witnessing pent-up demand in key office corridors," Verghese added. The report further stated that in the coming year, around 63 per cent of the investors said they are likely to invest up to 20 per cent of their investments in distressed assets.

"Developers' cash flows and financing have been hit since demonetisation, and the RERA. While distressed assets are a good opportunity for investors to acquire assets below cost, it is often fraught with legal challenges in India, and therefore, can be a risky proposition." "We believe that now with the government's IBC taking shape, investors will be more open to snapping up distressed assets. Over the next 12-24 months, we expect to see funds announcing or raising funds specifically for distressed assets," he added.

(With inputs from agencies.)