Market Overview

National – September 5th, 2024 – CBRE South Asia Pvt. Ltd., a leading real estate consulting firm in India, has released a comprehensive report titled ‘Navigating the SM REIT Landscape – A Look at Regulations and Implications.’ According to the report, the Small and Medium Real Estate Investment Trusts (SM REITs) market in India is projected to surpass USD 60 billion by 2026. This growth is attributed to the increasing stock of completed commercial office space, with an anticipated 350 million square feet of potential SM REIT-ready office space by 2026.

Current Market Snapshot

• Total Office Stock in India: Over 800 million square feet.
• Office Stock Under Listed REITs: Over 88 million square feet.
• Potential SM REIT Office Stock by 2026: Approximately 350 million square feet.

Leading Cities in SM REIT-Ready Stock

• Mumbai: Leads with approximately 75 million square feet of completed SM REIT-ready office stock as of June 2024, with an additional 10 million square feet expected by 2026.
• Delhi-NCR: Holds around 70 million square feet of completed SM REIT-ready stock.
• Bengaluru: Follows with 50 million square feet.
• Hyderabad: Has 30 million square feet, with a cumulative addition of 36 million square feet expected from Delhi-NCR, Bengaluru, and Hyderabad by 2026.
• Pune, Kolkata, and Chennai: Each recorded over 25 million square feet of completed supply, with an additional 14 million square feet anticipated over the next two years.

Impact of SM REITs Framework

The SM REITs framework represents a transformative development in India’s real estate sector, aiming to institutionalize the market by promoting transparency and attracting diverse investors. Key aspects of the framework include:

• Regulatory Measures: Prohibition on investments in under-construction properties to mitigate project completion risks, and mandatory quarterly distributions to unitholders to prevent fund diversion.
• Investor Appeal: SM REITs are set to attract high-net-worth individuals (HNIs), non-resident Indians (NRIs), and overseas citizens of India (OCIs) by focusing on pre-leased, income-generating commercial properties.
• Tax Reforms: The Union Budget 2024-25’s reduction of the holding period for long-term capital gains from 36 to 12 months aligns SM REITs with listed equity shares, enhancing their attractiveness.

Future Prospects

The SM REITs framework builds on the success of traditional REITs and InvITs, which have collectively amassed INR 1.3 trillion in asset value over the past four years. By pooling smaller, high-occupancy assets, SM REITs are expected to improve property maintenance, ESG compliance, and tenant profiles, leading to a more organized and efficient real estate ecosystem.

Anshuman Magazine, Chairman & CEO of CBRE India, Southeast Asia, Middle East & Africa, highlighted, “The introduction of the SM REITs framework marks a pivotal moment for India’s commercial real estate sector. By enhancing transparency and offering robust investor protections, SM REITs are set to redefine portfolio diversification.”

Rami Kaushal, Managing Director of CBRE Consulting & Valuation Services, added, “The alignment of SM REITs with recent tax reforms is a game-changer. It will drive increased participation, further institutionalizing the market and reshaping India’s real estate ecosystem.”

This emerging SM REIT market holds significant potential for both institutional and individual investors, promising a dynamic shift in India’s real estate investment landscape.