Many of the world's largest investors are rushing to buy office space in India with a plan to turn them into real estate investment trusts, hoping that demand will grow and provide attractive returns in the upcoming years.

Raising Demand for Indian Office Space

In October, Brookfield Asset Management Inc. agreed to pay $2 billion for rent-yielding 12.5 million square feet of offices and co-working spaces in Asia's No. 3 economy. This is India's biggest business deal ever. Blackstone Group Inc. purchased $1.2 billion from a local developer of malls and other commercial properties, set to increase its 9.6 million square feet of fully-owned real estate assets in India further.

Blackstone is the sponsor of Embassy Office Parks REIT, which in April 2019 raised $689 million in the first such listing in the world. This was followed in August by another REIT that was also sponsored by Blackstone, though Brookfield is planning to list one before the end of this year in Mumbai. They said at least two more were in the pipeline for 2021.

Previously in India offices were available for a dollar, which has not changed significantly yet still offices are available at a dollar per square foot per month, said Quaiser Parvez, Nucleus Office Parks chief executive officer who manages the office portfolio of Blackstone. India will continue to be these organizations powerful pivots or pullers.

World's Biggest Investors

The emphasis is on the country's office market, where research laboratories that deliver more secure customers and safer rentals have made way for low-cost call centres. In southern India, Rolls Royce Plc has a facility in a building owned by Blackstone, and Novartis AG has a PhD team. In northern Gurgaon, Brookfield's technology park has tenants, including Cognizant Technology Solutions Corp. and Genpact Ltd.

Amid low-interest rates globally, high returns are attracting investors to REITs. According to Ivanhoe Cambridge, the real-estate unit of Canada's second-largest public pension fund, Caisse de depot et placement du Quebec, the REITs already listed in India provide yields of 7.5 percent to 8 percent, compared to 3 percent to 5 percent in cities such as Singapore, Beijing and Sydney.

Currently, because of a regulatory requirement of a minimum Rs 50,000 ($700) investment in a nation where over half of the population earns less than Rs 10,000 a month, the Indian REIT sector is dominated by foreign investors and wealthy individuals. On Monday, 7th Dec 2020 Kotak Mahindra Asset Management Co. launched the Kotak International REIT Fund of Funds, and the first Indian REIT diversified mutual fund to invest in SMAM Asia REIT Sub Trust Fund units.

By: Shailaja K