Higher traction in office leasing bodes well for Mindspace Business Parks REIT

Office leasing has been on an upward trajectory, aided by an accelerated shift towards grade-A properties. This was among the key highlights of the recently held analysts' day meet of Mindspace Business Parks REIT.

The company's management expects physical occupancy to increase to 60-70% by year end from 30-35% in May 22. For FY23, office space area scheduled for lease expiry stands at 1.1 million square feet (msf), of which at least 60% area is expected to be re-leased, the management told analysts.

In a report dated 6 June, analysts at ICICI Securities Ltd said they expect office leasing in India to see a strong pick-up in FY23 as physical occupancy across offices ramps up in excess of 50% from 25% currently.

"With the (Mindspace) REIT having ~43% of tenants in the technology domain along with smaller verticals such as financial services and telecom/media consisting of global in-house captives, we believe that the REIT is well poised to benefit from pickup in office leasing," added the ICICI Securities report.

According to the company's management, existing tenants are asking for incremental space to accommodate incremental hiring.

Further, the management highlighted that as of March 2022, the company had around 3.1msf of area under construction of which 1.7msf is expected to be operational in FY23. The company also has another 4.6msf under development, so the total inventory pipeline stands at 7.6msf.

"In the near-term Mindspace will commission 1.7msf in FY2023 (70% pre-leased), while 3.8msf of vacant area could provide additional fillip to earnings," said analyst at Kotak Institutional Equities.

Meanwhile, shares of the company had hit a new 52-week high of ₹369.48 on the National Stock Exchange in April and the stock currently trades at ₹351. Apart from the trend in office leasing, the stock's fate would depend on the extent of recovery in office rentals, said analysts.