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Vinod Rohira, chief executive, Mindspace Business Parks REIT
Vinod Rohira, chief executive, Mindspace Business Parks REIT

‘Office real estate to see growth in 4-5 quarters’

  • The volume of assets acquired by global investors show they have a strong long-term view of Indian’s commercial realty market, says Vinod Rohira, chief executive, Mindspace Business Parks REIT

While foreign investors continue to place long-term bets on India’s commercial office market, global firms hit a pause on picking up new office spaces. The listing of Mindspace Business Parks REIT, which is backed by K. Raheja Corp and Blackstone Group Lp, met with robust response despite the pandemic, with income-generating properties attracting investors. As part of Mint’s ongoing Pivot or Perish series, Vinod Rohira, chief executive, Mindspace Business Parks REIT, spoke about the REIT and the outlook on commercial offices. Edited excerpts:

When do you expect the commercial office sector to make a comeback?

In the June quarter, companies tried to maintain business continuity with work-from-home amid the pandemic, which led to a disruption in commercial real estate (CRE). In India, top quality properties in CRE are located in 5-6 key markets and nearly 90% of that footprint is occupied by global technology firms. We will see headwinds in the next two quarters, but expect strong comeback of growth in 4-5 quarters. Global firms have hit a pause in taking up new space, but companies are renewing leases.

In the last decade, consumption of office space spiked because India emerged as the go-to place for setting up global in-house centres (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 and Brookfield have recently bought large office spaces. Will global investor interest continue?

The volume of assets acquired by global investors 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, but are looking at good, rent-yielding assets with a big tenant base.

Do you foresee further consolidation in the commercial office sector?

The office development business is getting bigger, where the average size of buildings are 1-2 million sq. ft and they need 500-1,000 crore for construction. CRE was starting to look so good, everyone wanted to convert their land to commercial buildings. But funding is not available for developers who are first-timers in CRE. Non-banks are not lending and banks are not funding easily. The strata sale model to raise money will only destroy buildings.

Bengaluru had 8-9 office developers, now that’s down to 5-6. Hyderabad saw a number of office projects, but most are shut till there is financial closure or someone comes and 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.

How have REITs transformed the commercial realty 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. Institutional investors will do multiple REITs, either on their own or with developers. Investors sitting on large asset portfolios will want to exit and REITs are a viable exit route. In India, 50-60 million sq. ft commercial space got listed and nearly 300 million sq. ft with investors. There is a strong REIT pipeline.

What are the factors that played a role in the robust response to the Mindspace REIT amid the pandemic?

REIT is not just an equity play. 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% 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 it. The REIT was not just an exit route but the kind of returns we could offer to investors. It was a 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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