REITs | Expert weighs in on opportunities and key trends
The total market capitalisation for REITs in the US is $1.3 trillion versus only about $11 billion in India.
Aravind Maiya, CEO of Embassy REIT discussed the journey of Real Estate Investment Trusts (REITs) in India over the last five years and the scope for growth in the coming years, in an interaction with CNBC-TV18.
“We've raised about ₹26,000 crore from the market and distributed almost ₹17,000 crore in the last five years. So it's been a pretty good start for us as a product,” he said.
This is the verbatim transcript of the interview.
Q: REITs are still at a nascent stage as an asset class here. In other countries like the US as well as Singapore, they are much more evolved and mature with many types of real estate being rolled out as REIT. How do you see India compared to the other matured markets and what could be the growth potential going forward for REIT as an asset class?
A: You're absolutely spot on. It's very early days for us. Why don't I take the US as a case in point because that's probably the most evolved market for REITs? In the US, close to 99% of REITs are in the form of listed commercial real estate. The total market capitalisation for REITs in the US is $1.3 trillion versus that number is only around $11 billion us in India.
When you look at the type of REITs or the type of assets which are in the form of REITs, it starts with of course commercial, retail, there is residential REITs, there is hospitality in the form of hotels, there are hospitals, there are data centres, there's industrial. So a lot of asset classes which are already in the form of REITs whereas in India as you're aware it is just three commercial and one retail. To speak a bit more on commercial, in the US there are about 4.8 billion square feet of commercial real estate versus that number is only around 800 million square feet and growing pretty fast.
So I would say the growth potential for this product in the country is very vast. And we've just started on a growth path.
Q: You mentioned the various types of real estate also being part of it. But in India, we have one which owns shopping malls. And the rest, the bulk of it comes from office space. So let's talk about the potential. What's the potential of these grade-A office complexes in terms of growth, in terms of demand as well as also the rentals increasing which has a direct benefit for the investors of REIT?
A: Talking about offers, the three commercial office REITs today own around 100 million square feet versus the all-India stock as I said is around 800 million square feet but just to start with a few numbers first over the last if you see calendar year 2023 we've done about 60 million square feet of gross absorption around 40 million net that number is expected to be around 65 million square feet for calendar year 2024 and largely this is coming from unprecedented demand from global captives. So they are growing phenomenally in India. Again to give you a few numbers on captives, today there are around 1,700 captives in India expected to grow to around 2,500. They employ around 19 lakh people, expected again to grow to around 45 lakh people. The interesting stat is close to 72% of global 500 companies as of today still don't have a captive presence in India. So all of these are coming to India.
Also Read | Global money has started tiptoeing back into Indian equities
So the question is, why is commercial office growing in India? I would say broadly three reasons—number one, the most fundamental being the availability of talent at scale and at a reasonable cost. Now, if you want people across different skill sets, you'll find it in India and at the scale which organizations want. So that's number one.
Number two, I would say is the availability of world-class office space in India, like what you find globally. And probably the third important reason is India as a country per se. We are seeing a phenomenal amount of growth as a country, stability in policy, a lot of investments in infrastructure, and of course the focus on ease of doing business. All put together, I think these are the catalysts for commercial offices to continue to grow in India.
For more, watch the accompanying video
“We've raised about ₹26,000 crore from the market and distributed almost ₹17,000 crore in the last five years. So it's been a pretty good start for us as a product,” he said.
This is the verbatim transcript of the interview.
Q: REITs are still at a nascent stage as an asset class here. In other countries like the US as well as Singapore, they are much more evolved and mature with many types of real estate being rolled out as REIT. How do you see India compared to the other matured markets and what could be the growth potential going forward for REIT as an asset class?
A: You're absolutely spot on. It's very early days for us. Why don't I take the US as a case in point because that's probably the most evolved market for REITs? In the US, close to 99% of REITs are in the form of listed commercial real estate. The total market capitalisation for REITs in the US is $1.3 trillion versus that number is only around $11 billion us in India.
When you look at the type of REITs or the type of assets which are in the form of REITs, it starts with of course commercial, retail, there is residential REITs, there is hospitality in the form of hotels, there are hospitals, there are data centres, there's industrial. So a lot of asset classes which are already in the form of REITs whereas in India as you're aware it is just three commercial and one retail. To speak a bit more on commercial, in the US there are about 4.8 billion square feet of commercial real estate versus that number is only around 800 million square feet and growing pretty fast.
So I would say the growth potential for this product in the country is very vast. And we've just started on a growth path.
Q: You mentioned the various types of real estate also being part of it. But in India, we have one which owns shopping malls. And the rest, the bulk of it comes from office space. So let's talk about the potential. What's the potential of these grade-A office complexes in terms of growth, in terms of demand as well as also the rentals increasing which has a direct benefit for the investors of REIT?
A: Talking about offers, the three commercial office REITs today own around 100 million square feet versus the all-India stock as I said is around 800 million square feet but just to start with a few numbers first over the last if you see calendar year 2023 we've done about 60 million square feet of gross absorption around 40 million net that number is expected to be around 65 million square feet for calendar year 2024 and largely this is coming from unprecedented demand from global captives. So they are growing phenomenally in India. Again to give you a few numbers on captives, today there are around 1,700 captives in India expected to grow to around 2,500. They employ around 19 lakh people, expected again to grow to around 45 lakh people. The interesting stat is close to 72% of global 500 companies as of today still don't have a captive presence in India. So all of these are coming to India.
Also Read | Global money has started tiptoeing back into Indian equities
So the question is, why is commercial office growing in India? I would say broadly three reasons—number one, the most fundamental being the availability of talent at scale and at a reasonable cost. Now, if you want people across different skill sets, you'll find it in India and at the scale which organizations want. So that's number one.
Number two, I would say is the availability of world-class office space in India, like what you find globally. And probably the third important reason is India as a country per se. We are seeing a phenomenal amount of growth as a country, stability in policy, a lot of investments in infrastructure, and of course the focus on ease of doing business. All put together, I think these are the catalysts for commercial offices to continue to grow in India.
For more, watch the accompanying video
(Edited by : Shweta Mungre)
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