Along anticipated lines, the Indian Commercial Real Estate (CRE) workplace industry has noticed a 47% YoY decline in Q1CY21 (January-March’21) net absorption at 3.6msf. While green shoots have been emerging in January’21 with a pickup in leasing enquiries and big pre-leasing transactions, the second Covid wave in India may well lead to a delayed recovery for the workplace industry. We now count on a leasing pickup towards the finish of September’21 vs. July’21 earlier and the present trend of occupiers downsizing and delaying new leasing choices to continue in the close to-term.
However, we stay positive about the lengthy-term resilience of the Indian workplace industry, with a restricted quantity of eight-10 big pan-India workplace developers, India possessing economical rentals of below 1 $/psf/month and an abundance of STEM talent. We stay bullish on workplace asset developers and reiterate our ‘buy’ ratings on DLF, Embassy REIT, Oberoi Realty and Brigade Enterprises.
Office leasing recovery may well choose up towards the finish of Q3CY21. While CY20 was a weak year with 20msf of net absorption owing to Covid effect, we count on net absorption to progressively strengthen and construct in net absorption of 24.3msf in CY21E and 29.8msf in CY22E. We count on leasing activity to choose up from September’21 as international travel may well choose up once again along with successful Covid vaccines.
We think that cumulative net workplace absorption of 80msf more than the next years (CY21-23E) compares nicely with all round upcoming Grade A provide of 117msf more than the identical period of which 20-30% may well be shelved, major to successful provide of 80-85msf.
REITs have emerged as a potent asset monetisation tool. With 3 REIT listings in India, the door has opened for more prospective REIT listings from FY22E onwards.
With India possessing 488msf of occupied Grade A workplace stock as of March 2021 and international institutional investors continuing to invest in annuity assets, we count on more REIT listings more than the next 2-3 years. Developers in our coverage universe such as DLF, Phoenix Mills and Oberoi Realty have currently highlighted their medium-term plans to look at a REIT listing.
Further, big annuity portfolio buyouts in FY21 such as Blackstone acquiring out Prestige Estates’ workplace and mall assets and Brookfield’s acquisition of RMZ’s workplace portfolio points to consolidation in favour of institutional landlords for annuity assets.