REITs may take a hit as IT sec­tor cuts real es­tate spend

Hindustan Times (Jalandhar) - - HTBUSINESS - Romita Ma­jum­dar and Kal­pana Pathak romita.m@livemint.com

IT FIRMS HAVE MORE THAN 90% OF THEIR STAFF WORK­ING FROM HOME DUE TO COVID-19

MUM­BAI: A stag­ger­ing ₹37,072 crore worth of an­nual rent from of­fice leases are at risk over the next 12 months as tech­nol­ogy and fi­nan­cial ser­vices ten­ants con­sider a per­ma­nent shift to re­mote work amid the coro­n­avirus pan­demic.

As the trend gath­ers pace, prop­erty de­vel­op­ers are wor­ried that it may se­verely cramp their abil­ity to exit real es­tate in­vest­ment trust, or REITs, a com­pany that man­ages a pool of rent-yield­ing as­sets and al­lows de­vel­op­ers to mon­e­tise them.

Tech­nol­ogy and fi­nan­cial ser­vices firms oc­cupy the bulk of top­grade com­mer­cial real es­tate as­sets.

They are also at the fore­front of the trend of shift­ing per­ma­nently to re­mote work.

Around 391 mil­lion sq. ft of com­mer­cial space is at stake within the next 12 months, to a re­port by real es­tate data provider CRE Ma­trix re­leased in May. Of th­ese, around 186 mil­lion sq. ft have com­pleted the lock-in pe­riod and will see leases ex­pire within 12 months, the re­port said.

As the pan­demic rages in In­dia, IT firms have more than 90% of their staff work­ing from home and many of th­ese firms have been con­tem­plat­ing mak­ing re­mote work a per­ma­nent mea­sure for at least a part of their em­ployee base.

On Fri­day, a re­port in the Eco­nomic Times sug­gested global IT firm IBM may re­assess and exit half of its long-term ten­an­cies in In­dia, al­though the com­pany has called the re­ports “in­ac­cu­rate”.

IBM is the big­gest ten­ant of Em­bassy Of­fice Parks REIT, con­tribut­ing to 12% of the REIT’s an­nual rental in­come and cov­er­ing 3.6 mil­lion sq. ft of of­fice space, ac­cord­ing to ex­change fil­ings. The Em­bassy REIT stock fell 1.08% on Fri­day.

The sec­ond REIT to at­tempt a pub­lic list­ing—Mindspace Busi­ness Parks REIT—also counts IT ser­vices firm Ac­cen­ture as its big­gest ten­ant. Ac­cen­ture ac­counts for 8.7% of Mindspace Busi­ness Parks’ an­nual rental in­come, oc­cu­py­ing 1.9 mil­lion sq. ft of of­fice space, ac­cord­ing to the draft IPO prospec­tus filed by the com­pany in De­cem­ber.

Both Em­bassy and Mindspace de­rive al­most 50% of their rental in­come from IT firms.

“The IPO mar­ket is weak due to covid and with con­cerns that IT firms will relook their real es­tate strat­egy, one feels that pub­lic of­fer­ings of REITs will be a chal­lenge this year. In­vestors will want to wait two to three quar­ters to see how this plays out,” an in­vest­ment banker said on the con­di­tion of anonymity.

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