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With the vaccination drive gaining significant momentum, there is a visible uptick in commercial activity. Many companies have already started to resume their offices – at least in a hybrid model. Owing to this, Real estate investment trusts (Reits) that have exposure to commercial assets have also started picking up.

Despite the pandemic, Reits have shown decent growth in the last two years. “Two of three REITs got listed during the Covid 19 phase and have performed well," said Piyush Gupta, Managing Director, Capital Markets and Investments Services, Colliers India

Most of the large tenants have not vacated their spaces which has led to vacancy being moderate in the REITs, he said, adding, “Further policy changes by the government including allowing FPIs investment in debt finance also improve investors’ confidence and a new source of financing for the REITs."

However, “If not for the second wave in the first quarter of the ongoing financial year, the growth would have been more," pointed out Anuj Puri, Chairman - ANAROCK Group.

How has the market recovered since the pandemic?

Both Gupta and Puri are of the opinion that office leasing has once again gained momentum. As per Colliers India, office leasing has increased 89% in Q3 2021 as compared to Q3 2020."

In H1 FY22, net absorption in the top 7 cities was 10.76 mn sq. ft. – 53% less than in H1 FY20 (the pre-pandemic period). Meanwhile, new office completion has picked up pace and already surpassed the pre-Covid levels by 2%, ANAROCK research showed.

“As much as 22.2 mn sq. ft. new area was completed in H1 FY22. Resultantly, office vacancies in the top 7 cities have risen by 2.60%."

As noted, office vacancies in southern cities like Bengaluru, Hyderabad, and Chennai have risen the most among the top 7 cities - by 4.2%, 3.9% and 2.78% respectively in H1 FY22 vs the same period in FY2021. In contrast, Pune and Kolkata saw office vacancy levels reduce during the same period, Puri said quoting ANAROCK research.

How has the Reits performed

  • Embassy Office Park REIT reported a 12% increase in their NOI in Q3 2021 on Y-o-Y basis with a 10% increase in revenue for the same period.
  • Brookfield India REIT also saw their NOI increase by 4% on Y-o-Y basis in Q3 2021.
  • The dividend distribution for all the three REITs have been upwards of 6%.
  • The rental collections for the REITs have been over 99% signaling a robust recovery.

(Collier India data showed)

However, Gupta pointed out, “Occupier experience has become of utmost importance. User experience will determine brand loyalty in this highly competitive segment."

"The inclusion of digital infrastructure and smart facilities will increase operational efficiency and overall asset value"

Going forward, how will the market change?

The IT/ITeS sectors have been on a hiring spree in 2020 and 2021 due to massive business accruals, Puri said adding, “To accommodate these employees in a future when we see a gradual return of employees and adoption of hybrid workplace practices by Infotech giants, office space demand will grow in 2022 and 2023."

Meanwhile, Gupta pointed out, as a hybrid model of working takes shape, occupiers are looking at decentralised teams, work from (near) home, and the hub and spoke model. Co-working spaces are filling this gap and offering collaborative workspace to employees

“Initially, the growth of co-working spaces was limited to the top 6 cities. However, post-pandemic, operators are expanding into tier-II cities. Now we are seeing large enterprises setting up satellite and sales offices in smaller cities."

“We expect this trend to continue and demand from fintech to rise in the next two years," Gupta concluded.

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