India offer $30bn strata office space investment opportunity

• Office space accounts for 2/3rd share of Indian HNIs* real estate investments
• India’s strata** office market offers ~180 mn sq ft investment opportunity
• Mumbai Metropolitan Region (MMR) offers highest leased space of 49 mn sq ft for investments

Note: *Investors with surplus asset holdings above USD 1 mn and does not include primary residence

**Multi owned commercial buildings / commercial buildings which are sold by developers to various owners / investors

Mumbai, September 2, 2020: Office space emerged as the most preferred segment by High Net worth Individuals (HNIs) in India, accounting for 67% of their total investments in real estate, according to JLL’s Private Wealth Group report ‘(re)Imagine Real Estate Investments’ released today.

The country’s office sector has witnessed a robust growth over the last four years with the average annual net absorption crossing 30 mn sq. ft. leading to steady rentals and capital appreciation, until the onset of the pandemic. This segment is expected to recover the fastest due to robust fundamentals.

The number of HNIs and family offices in India has been growing at a steady pace and they continue to allocate more capital into commercial real estate investments with a focus on office. Office space investments offer stable annual cash flow and capital appreciation thereby offering attractive returns for HNIs.

“Real estate, which plays the dual role of a contributor as well as a beneficiary of growth, will prove to be the most important asset class in the HNI portfolio due to its tangible nature, stable income, steady returns and collateral value. Furthermore, the nature of investments within real estate has seen transition with higher allocation towards commercial office space assets and in publicly traded Real Estate Investment Trusts (REITs), helping investors reimagine deployment strategies,” said Ramesh Nair, CEO & Country Head (India), JLL.

JLL expects additional demand for quality warehousing space which has driven recent activities in the e-commerce, FMCG and pharma sectors. Delhi NCR, followed by Mumbai and Bengaluru, remained the top three cities in terms of warehousing space absorption in 2019 accounting for more than 20 mn sq. ft. of absorption.

“The listing of two REITs is an indicator of the institutionalisation and maturity of office space segment in the country. The success of this investment vehicle has instilled confidence in other developers and investors, primarily with a commercial office portfolio, to list their assets under a REIT platform. JLL Research estimates that 270 mn sq. ft. of office stock would be eligible for REIT which would thereby translate to a potential investment of ~USD 33 billion,” said Dr Samantak Das, Chief Economist and Head of Research & REIS, JLL India.

“India has more than 600 mn sq. ft. of Grade-A office space across its top seven cities in Q1 2020, and saw record absorption, steady rentals and low vacancy levels till this period. While we’re observing a temporary pause due to the global pandemic, this space is expected to bounce back. We’re expecting to see attractive investment opportunities in the strata office space, which is estimated to be ~180 mn sq. ft. valued at ~INR 2.26 lakh crore (USD 30 bn).” said Vishal Ahuja, Head, Private Wealth Group, JLL India.

Family offices are expected to take stock of their investments once there is more semblance of normalcy and lockdowns are lifted. Although the current situation has paused investments, those with a long-term outlook may use this period for bargain deals at attractive valuations.