REITs to drive institutional investment surge in Indian office real estate: Nuvama report

"Over the medium term, attractive REIT opportunities in India are likely to lead to higher institutional investments in the office space," said the report.

REITs or real estate investment trusts, are like a company that owns and operates real estate properties to generate income. Essentially, they lease properties and collect rent thereon, and the rent collected is later distributed among shareholders.

The report underscores the cautious private equity (PE) investments during the period 2022 and 2023 due to the concerns over rising inflation and interest rates.

The PE investments in calendar year (CY) 2023 and 2024 decelerated in the office segment due to the investor's preference towards the residential segments.

"CY23 and CY24 have experienced lower PE investments in the office segment. This is partly also due to a shift in investor preference towards the residential sector, which is currently booming and attracting investments through the promise of higher returns," the report added.

In CY21, only 14 per cent of the investment was done in completed properties, while 59 per cent was in new and under-construction projects.

On the other hand, in CY24, 82 per cent of the investment was in ready assets.

The CY24 was a strong year for the office space, with all-time high demand coupled with a decline in completions supporting vacancy correction. The momentum has continued in the first quarter of the calendar year (Q1CY25) as well, the report added.

In the near term, the report says that supply should broadly match demand over the next year.

"We forecast vacancy levels shall decline marginally over the medium term. We believe the pace of increase in rents shall gain momentum going ahead," the report added.