Upward rise in REIT occupancies, rents indicate healthy office demand

Occupancies at the office portfolios under real estate investment trusts (REITs) saw a significant rise in the third quarter aided by the denotification of SEZ spaces, while in-place rent also increased indicating healthy office take up, driven by strong demand from global capacity centres.

The quarterly results announced by the three office-based REITs — Embassy Office Parks REIT, Mindspace Business Parks REIT, and Brookfield India Real Estate Trust — show that occupancies rose 120-760 basis points, the least in the case of Mindspace REIT and the most for Brookfield REIT, to 86-87 per cent.

The post-results commentaries from the respective managements conveyed confidence in further rise in occupancy levels, especially with the conversion of more SEZ spaces into non-SEZ categories.

Office Demand

The demand for office space by companies is also encouraging capex plans and acquisition pipelines of the REITs.

Total office stock under the management of REITs is now around 90 msf, which is over a tenth of the total office stock in the country.

Data from the investor presentations show that in-place rents for REITs have risen in the range of 5-16 per cent on the back of mark-to-market, with Brookfield having the most increase. For a long time, India had the reputation of being one of the places with the cheapest office rentals at less than $1 per square foot (psf). However, over the past year or so, the lease rents have shown resilience and at top Grade A offices it is well beyond $1 psf. It is still cheaper even at these rates.

The effect of higher occupancies, more office space and higher rentals is having an effect on the distributions by the REITs, which are on a rising trend. Distribution per unit rose 11-13 per cent for Embassy REIT and Mindspace REIT and 3 per cent for Brookfield REIT.

Embassy REIT has guided for 7 per cent increase in payout in FY25.