In the middle of the pandemic, the listing of Mindspace Business Parks REIT, backed by K Raheja Corp and Blackstone Group Lp, met with robust response as income producing properties continue to attract investors
BENGALURU: Even as foreign investors place long-term bets on India’s commercial office market, global companies have hit a pause on new office space pick-up. In the middle of the pandemic, the listing of Mindspace Business Parks REIT, backed by K Raheja Corp and Blackstone Group Lp, met with robust response as income producing properties continue to attract investors. As part of Mint's ongoing Pivot or Perish series, Vinod Rohira, CEO, Mindspace Business Parks REIT in an interview spoke about REITs and outlook on the commercial office sector. Edited excerpts:
When do you expect the commercial office sector to make a comeback?
In the June quarter, companies tried to maintain business continuity, the work-from-home regime emerged and the pandemic led to a disruption in commercial real estate (CRE). In India, top quality properties in CRE are located across 5-6 key market and nearly 90% of that footprint is occupied by global technology firms. While we will see headwinds in the next 2 quarters, we expect strong comeback of growth in 4-5 quarters. Global firms have hit a pause in taking up new space but companies are renewing existing leases.
In the last decade, consumption of office space spiked because India emerged as the go-to place to set up global in-house centers (GICs), for its talent base and the affordability factor. The long-term view is that as businesses get more dependent on digitization, technology, IoT, India’s CRE will further expand.
Blackstone, Brookfield bought large office portfolios recently. Will global investor interest continue?
The volume of assets that global investors are acquiring, show they have a strong long-term view of Indian’s commercial real estate market. They have global presence and could have bought such assets anywhere but that they chose to do these transactions in India is a massive endorsement of their interest. However, it is important to note that most institutional investors are not buying greenfield and brownfield assets at all and are looking at good, rent yielding assets with a great tenant base.
Do you foresee further consolidation in the commercial office sector?
The office development business is getting bigger, where the average sizes of buildings are 1-2 million sq ft and they need ₹500-1000 crore just for construction. What happened was CRE was starting to look so good, everyone wanted to convert their land to build commercial buildings. But funding is not available for developers who are first-timers in CRE. Non-banking financial companies are not lending and banks are not funding easily. The strata sale model to raise money will only destroy buildings.
Bengaluru earlier had 8-9 office developers and that’s down to 5-6. Hyderabad saw a number of office projects but most of them are shut till there is financial closure or someone comes buys them. The definition of ‘Grade A’ buildings is changing.
Serious tenants don’t want ambiguity and want to go for only good quality assets. They are taking up space only if their business is doing well. So the dynamics are changing dramatically towards the big boys in the commercial office business.
How have REITs transformed India’s commercial real estate sector?
REITs have the potential to transform India’s commercial real estate market. They will change the way assets are looked at, attract top quality tenants and the business will be about managing the assets better. Landowners can come and offer to swap their assets for equity in a REIT because it’s more tax efficient. We will see institutional investors doing multiple REITs, either on their own or with developer partners. Investors who are sitting on large asset portfolios will want to exit and REITs are now a viable exit route.
In India, around 50-60 million sq ft of commercial space has got listed and there is nearly 300 million sq ft with investors. So there is a strong REIT pipeline.
What are the factors that played a role in the robust response to the Mindspace REIT amidst the pandemic?
REIT is not just an equity play and the customer or investor is far more informed. The credibility and legacy of the sponsor, the quality of assets, outlook, dividend payout play an important role. When 94% of the assets are completed, it’s a tangible offering which can be marketed. Due to covid, investors knew we gave a far more conservative outlook and it was transparent for them to see what we offered. In the second round of roadshows in June, we were surprised by investor response. After that, we decided to go ahead with the REIT. The REIT was not just an exit route but the kind of returns we could offer to investors. It was new chapter to institutionalize our commercial real estate portfolio, and we will take it to another level in the next decade.
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