India's Real Estate Investment Trust (REIT) market is poised for significant growth, with projections indicating that REITs could represent 25% to 30% of the Grade A office space by 2030. This is a substantial increase from the current 16%, signaling a maturing market and growing investor confidence.

Current Market Landscape

Currently, the Indian REIT market is transitioning from a "nascent" to an "early growth" stage. Four listed office REITs already encompass approximately 133 million square feet of Grade A office space. This indicates a solid foundation for future expansion, with new listings and broadening of the occupier base expected to further boost the sector.

Growth Drivers

Several factors are contributing to the anticipated surge in REIT penetration:

• Demand from Global Capability Centers (GCCs): Rising demand from GCCs, along with increased space uptake by technology and BFSI (Banking, Financial Services, and Insurance) firms, is driving occupancy levels in Grade A office spaces. This sustained demand creates a favorable environment for REIT growth.
• Expansion Potential: An additional 371 million square feet of Grade A office assets, accounting for about 46% of the existing Grade A stock, has the potential to be listed under future REITs. This substantial pipeline of REIT-able properties indicates significant growth potential in the coming years.
• Location of REIT-able Stock: A significant portion of the additional REIT-able office stock, approximately 60%, is concentrated in the Secondary Business Districts (SBDs) of the top seven cities in India.
• Strong Occupancy Rates: Occupancy rates in India's commercial real estate sector remain strong, exceeding 86%, which reflects high demand for premium office spaces.

Regional Distribution

Among the top seven cities in India, Bengaluru leads with 24% of the additional REIT-able stock, followed by Hyderabad at 19%. This suggests that these cities will be key drivers of REIT growth in the coming years. At a micro market level, Bengaluru's peripheral business districts (PBDs) dominate existing REIT portfolios.

Sustainability Focus

Existing REITs are increasingly focused on sustainability, with 86% of operational office portfolios already green-certified. Indian REITs are aiming to achieve 100% green certification across their portfolios and increase renewable energy usage by 30-35% in the next few years.

Analyst Perspectives

According to Badal Yagnik, CEO of Colliers India, office REITs in India are currently in an early growth stage, with a significant portion of Grade A stock already listed on the equity markets. He notes that the concentration of future REITs in SBDs presents a significant opportunity for developers and investors to unlock value. Vimal Nadar, Senior Director & Head of Research, Colliers India, added that with strong fundamentals in play, 25-30% of the overall office stock in India can potentially come under REITs by 2030.

Future Outlook

While office remains the primary segment for REITs in India, there is potential for diversification into other asset classes such as retail, warehousing, hospitality, and data centers. As the market matures, rental housing segments like senior housing, co-living, and student housing could also become viable REIT investments.