Foreign, domestic investors target commercial real estate
BENGALURU: Fundraising and investments in India’s office space sector are expected to hit a peak as local developers and foreign investors expand their portfolios through fresh investments and acquisitions or launch real estate investment trusts (REITs) to monetise existing portfolios.
Thus far in 2017, more than $2 billion worth of foreign investment deals in commercial real estate have been closed—mainly to acquire stakes in projects and companies. Another $1.4 billion of foreign investment is expected, to build and acquire office assets, and a further ₹3,200 crore is being raised by domestic funds to buy office projects. India’s first REIT will also be launched by the end of the year and raise ₹6,000 crore.
In August, India’s largest listed real estate firm DLF Ltd said its promoters would sell their stake in its rental arm for ₹11,900 crore (the deal involves selling a 33.34% stake to an affiliate of GIC Real Estate, Singapore, for ₹8,900 crore and the buyback of preference shares for another ₹3,000 crore), in what is perhaps the largest foreign direct investment in the sector.
“We have created a private trust and the idea is to grow the portfolio (currently 26.9 million sq. ft), which has the potential to be doubled,” said Saurabh Chawla, senior executive director-finance, DLF.
Embassy Office Parks, a partnership between realty firm Embassy Group and investor Blackstone Group Lp, will launch its REIT by December to monetize its portfolio.
The partners plan to file a draft red herring prospectus by the end of September, Embassy chairman Jitu Virwani said.
The Embassy REIT, which aims to raise around₹6,000 crore, was the first one to be accorded registration with the Securities and Exchange Board of India (Sebi) in July.
The success of the Embassy-Blackstone REIT is crucial because it will lend confidence to other investors and developers eyeing REITs.
Meanwhile, other companies and funds are planning to expand their presence or build their portfolios.
RMZ Corp. is strengthening its position as a prominent “Grade A” commercial office space provider by strengthening its presence across important cities. Xander Group Inc. plans to ramp up its office portfolio after having invested more than $400 million already.
Three factors are driving interest in commercial real estate-demand, while lower than last year, is still high enough; rents have been steady; and there’s a shortage of premium office space in the big cities.
Supply of office space across eight major cities fell by nearly 50% in the first half of 2017, compared with the same period last year, property consultant Cushman and Wakefield said in its half yearly report in July.
It termed the fall in supply “one of the biggest declines in the last five years”.
Blackstone bought around a 15% stake in various office projects of K Raheja Corp. for around $250-300 million this year. K Raheja Corp. has 20 million sq. ft of office space earning rent, and plans to add another 15 million and may go the RE IT way in the future.