Bengaluru: Ultra-rich individuals are seeking a larger pie in India’s booming commercial office real estate, as the sector gets more organized with real estate investment trusts (REIT) and large funds coming into play.
HNIs eye larger pie in booming office space as REITs, large funds come into play in real estate sector
High net worth individuals (HNIs) are not only buying office space in large commercial complexes directly from developers. They are also investing through fund houses, which buy rental assets, and are eyeing REITs that are expected to make such investments secure and yield better returns.
Bengaluru-based Prestige Estates Projects Ltd is launching a large office project in the city, where it plans to sell around 50% of the stock to HNI investors.
The developer, which had stopped selling to investors in the past few years, plans to resume sales on the back of high demand from HNIs, the company said in a recent analyst call. “There are a lot of enquiries for good quality office space. We plan to resume selling to investors with this new project, which is more than a million sq. ft in size,” said Prestige chief executive officer (CEO) Venkat K. Narayana.
The under-performance of residential real estate may have prompted investors to move to offices, but the latter has enough reasons to attract investments on its own.
Home buying is undergoing its worst spell in recent years, while offices are booming, with institutional investments pouring in, demand outpacing supply and the first REIT a few months away.
As the office space sector gets more organized, HNI and non-resident Indian (NRI) investors are realizing that instead of taking on the headache of directly buying, managing and maintaining commercial property, they can participate through a REIT with a specialist asset manager, said Ambar Maheshwari, CEO (private equity), Indiabulls Asset Management Co. Ltd.
“They can also invest through funds… These are effective ways of making individual investors participate in the office growth story,” he said.
Indiabulls Dual Advantage Commercial Assets Fund, an alternative investment fund, is in fund-raising mode and will raise around ₹1,500 crore, including ₹500 crore from co-investors who are mainly HNIs and family offices.
In September, Blackstone Group LP-backed Embassy Office Parks filed with the Securities and Exchange Board of India an offer document to raise over ₹5,000 crore through an REIT, which is likely to be listed early next year. The REIT portfolio comprises 33 million sq. ft of office and hospitality assets.
Shivam Sinha, founder and CEO, India Assetz, a real estate wealth management advisory, said though returns on office space investments have shrunk a bit, investors are still keen on commercial real estate because they can get good capital returns along with rental yield.
“With REITs, HNIs would have access to relatively risk-free investments, similar to investing in mutual funds. Investments in office space are larger, so investors often form a pool, jointly buy a single unit, and split the rental yield. Typically, they don’t prefer stand-alone buildings unless they are buying the whole building, and prefer buying space in a large office park,” Sinha said.
An HNI investor could invest anything between ₹5 crore and ₹50 crore. “Apart from the traditional office and retail spaces where yields have compressed to around 7%, HNIs are open to warehousing and student housing for the better yields that these segments are capable of offering,” said Tejas Patil, head, real estate investment, Sanctum Wealth Management.
Salarpuria Sattva Group has sold to HNIs in the past, but its current strategy is to expand and own office assets and then decide whether to go for a REIT, said its managing director, Bijay Agarwal. There is good demand for buying rental assets because of the anticipated REIT, he said