Blackstone, Brookfield buy Indian offices for Reit yields
MUMBAI: Some of the world’s biggest investors are snapping up office space in India with plans to turn them into real estate investment trusts, betting that demand will sustain and provide attractive yields in coming decades.
Brookfield Asset Management Inc. in October agreed to pay $2 billion for 12.5 million square feet of rent-yielding offices and co-working spaces in Asia’s No. 3 economy. That’s the biggest real estate deal ever for India. Blackstone Group Inc. bought $1.2 billion of malls and other commercial properties from a local developer, set to further expand its 9.6 million square feet of fully-owned real estate assets in India.
These assets will probably be folded into existing Reits or listed as new ones, according to the people with knowledge of the matter, who asked not to be identified citing rules. Blackstone is the backer of Embassy Office Parks Reit, which raised $689 million in the country’s first such listing in April 2019. That was followed by another Reit that’s also backed by Blackstone in August, while Brookfield is looking to list one in Mumbai before the end of this year. At least two more are in the pipeline for 2021, the people said. “The India story happened when offices were available for a dollar, that has still not dramatically changed, you still have offices available at a dollar per square foot per month,” said Quaiser Parvez, chief executive officer at Nucleus Office Parks that manages Blackstone’s office portfolio. “India will continue to be strong pivot or puller of these organisations.”
The attention is focused on the country’s office market, where low-cost call centres have made way for research laboratories that offer more stable clients and surer rents. Rolls Royce Plc has a facility in a building owned by Blackstone in southern India and Novartis AG has a team of doctorates. Brookfield’s technology park in northern Gurgaon has tenants including Cognizant Technology Solutions Corp. and Genpact Ltd.
High returns are luring investors to Reits amid low interest rates globally.
The Reits already listed in India provide yields of 7.5-8%, compared with 3-5% in cities such as Singapore, Beijing and Sydney, according to Ivanhoe Cambridge, the realty unit of Canada’s second-biggest public pension fund, Caisse de depot et placement du Quebec.
Currently, the Indian Reit market is dominated by institutional investors and wealthy individuals due to a regulatory requirement of a minimum ₹50,000 ($700) investment in a nation where more than half the population earns less than ₹10,000 a month.