According to a survey conducted by KPMG about 100 million sq. ft. of commercial space are eligible for REITs in the next 2-3 years. India has 375 million Grade A office space, in total, available for REITs.
The commercial space is expected to add about 50 million sq. ft. of space each year and is a large opportunity for investment, especially in the major cities. Commercial spaces can also be shopping centers, warehouses, and hospitality spaces.
REITs would not address the liquidity challenges faced by developers but are expected to help streamline the sector by creating a transparent mechanism for raising finance in the market as it would be governed by SEBI guidelines which would help in maintaining transparency and their accountability. Amendments in taxation and regulatory aspects of REITs are required to enhance the effectiveness.
The Indian office space market has witnessed completion of 10 million square feet of office space during July-September 2015. While Bangalore offered the highest supply, developers are faced with challenges of liquidity to undertake commercial real estate, and most of the supply was pre-commitments of the earlier years.
Unlike residential spaces, , in case of commercial or office space the developer starts earning lease rents only after the building is complete, which makes the business of commercial realty highly leveraged even as demand for quality office space is outstripping supply.
This rise in absorption activity, primarily driven by corporate occupiers from sectors such as IT/ITES, banking / financial services, and e-commerce companies, reflected a sustained improvement in office space leasing sentiments across most cities
Source: IKIA Research