E-Paper
520 lakh sq ft SM REIT-ready office space provides monetization opportunity of ₹67,000 to 71,000 crore: ICRA
Of this 3% is that of Grade A supply and 20% of grade B supply, indicating a healthy potential for SM REIT listings in the commercial office space
Around 520 lakh square feet of office space is eligible for small and medium REITs (SM-REIT) listing, creating a monetization opportunity of ₹67,000 to ₹71,000 crore. Of this 3% is that of Grade A supply and 20% of grade B supply, indicating a healthy potential for SM REIT listings in the commercial office space, an analysis by ICRA has said.
As of December 2023, the total Grade A office supply stood at 9800 lakh sq ft and Grade B office at 1150 lakh sq ft across the top seven cities. At a cap rate of 8-8.5%, SM REIT-ready office space provides monetization opportunities of Rs. 67,000 to ₹71,000 crore across top seven cities. Small and medium REIT-ready office spaces are estimated at around 520 lakh sq ft to 530 lakh sq ft, indicating a healthy potential for SM REIT listings in the commercial office space, the analysis said.
Also Read: First small and medium REIT expected to be listed by October: Naredco
SEBI has announced that it will regulate fractional ownership platforms (FOPs) offering real estate assets through small and medium REITs (SM REIT). Registration of existing FOPs and new ones is mandatory under SEBI. FOPs allow investors to participate in real estate ownership with fractional shares and minimum investment ranging from Rs. 10-25 lakh.
Given the increasing value of investments with such FOPs and the growing number of investors, SEBI has introduced regulatory oversight in the form of SM REIT regulations, the analysis said.
SM REITs will provide an opportunity for small Grade A and most of the Grade B office developers to monetize their investments. Also, fractional ownership platforms are expected to be formalized, leading to wider market acceptance. At present, it is estimated that the assets under management (AUMs) for various FOPs stand at Rs. 5,000 crore.
Minimum unitholding requirement for SM REITs could act as a deterrent
However, the minimum unitholding requirement for SM REITs could act as a deterrent from a scalability perspective, the ICRA analysis noted.
ICRA has maintained a Stable outlook on India’s commercial office sector. With healthy demand from global capability centres (GCCs), non-IT MNCs and domestic corporates, the net absorption across the top six cities is expected to grow by 4-5% in FY2025, after a decline of 19-20% to 470 lakh square feet (msf) in FY2024. With the influx of a huge supply of around 600 lakh sq ft in FY2025, the vacancy levels are expected to remain at around 16.0-16.2% (largely similar to the previous year).
Also Read: Sebi notifies small and medium Real Estate Investment Trusts
Rajeshwar Burla, Senior Vice-President & Group Head - Corporate Ratings, ICRA, said: “Small and Medium REITs will provide an opportunity for small Grade A and most of the Grade B office developers to monetise their investments. Also, fractional ownership platforms (FOPs) are expected to be formalized, leading to wider market acceptance,” he said.
In November last year, the Sebi board cleared the amendments to the REITs Regulations, 2014, in order to create a regulatory framework for the facilitation of SM REITs, with an asset value of at least ₹50 crore vis-a-vis minimum asset value of ₹500 crore for existing REITs.
As per the notification, the minimum price of each unit of the scheme of SM-REIT shall be ₹10 lakh or such other amount as may be specified by Sebi from time to time. The size of the asset proposed to be acquired in a scheme of the SM-REIT is at least ₹50 crore and less than ₹500 crore.
ICRA noted that registration of existing FOPs and new ones is mandatory under SEBI.
