Why Indian REITs are delivering big gains: The boom in commercial real estate, GCCs

Equity markets in India have been volatile this year, and have given lacklustre returns amid global geopolitical tensions and the US import tariff-related uncertainties. The BSE Sensex is up just over 4 per cent in 2025 till September 11. However, one asset class that has rewarded investors significantly more is real estate investment trusts (REIT), and with the office sector booming, aided by an expanding base of Global Capability Centres (GCC), they may have a long runway ahead. 

So far this year, four listed REITs – Embassy Office Parks, Mindspace Business Parks, Brookfield India and Nexus Select Trust – have delivered returns in the range of 8 per cent to 16 per cent. The fifth REIT – Knowledge Realty Trust – listed on August 18, hit a high of Rs 110 earlier this week, a 10 per cent gain over its issue price of Rs 100.

What’s driving this surge is the boom in the commercial real estate market, especially the rising demand from companies setting up global capability centres here. GCCs now account for 35-40 per cent share in total annual absorption in recent years.

This momentum is underpinned by a strategic shift as GCCs transform from cost-efficient back office units into high value innovation hubs focused on research and development, artificial intelligence and core engineering, according to consulting firm CBRE. According to its survey published this week, 65 per cent of the surveyed REITs are expected to expand their portfolios over the next two years.

More companies mandating employees to return to office is also going to drive demand for quality workspaces. According to CBRE, 85 per cent of the surveyed domestic firms are looking to expand their office portfolio over the next two years, compared with 73 per cent in 2024.

This demand will hugely benefit REITs, which own large A-Grade office parks in major cities like Mumbai, Bengaluru, Chennai, Hyderabad and Gurugram.

According to Ramesh Nair, the CEO and MD of Mindspace Business Parks REIT, the contribution of GCCs in the overall REIT market is now close to 35 per cent, while that for Mindspace is around 50 per cent.

The existing REITs have a portfolio of 133 million square feet. They additionally have around 34 million square feet under construction, and this supply will become operational in the next couple of years, according to Colliers. Additionally, there is 371 million square feet worth office stock that is REIT worthy, and could be part of future REITs.

“The remarkable growth in REITs underscores renewed institutional and retail investor appetite for commercial real estate-backed securities, supported by uptick in office demand and resilient rental yields,” said Madhubani Sengupta, head – knowledge services, ICRA Analytics.

In the April-June quarter, the four listed REITs at the time collectively distributed Rs 1,559 crore to over 2.7 lakh unitholders, up 13 per cent from Rs 1,371 crore distributed in the year ago quarter.

Buoyed by the strong demand, existing REITs are looking to further invest and expand. 

Mindspace, for instance, has outlined an investment of Rs 4,250 crore and over the next 3-4 years, it sees potential of adding around Rs 900-1,000 crore in net operating income.

REITs have been around for about six years only in India, compared with almost six decades in the US. Nair of Mindspace sees strong growth opportunity for this space.

“Today, if you look at REITs plus InvITs (Infrastructure Investment Trusts), put together, their assets under management are close to Rs 9.5 lakh crore. It is very similar to where the mutual fund industry was 10-12 years ago,” pointed Nair.

Experts say there is a need to enable more domestic institutional participation in REITs, which will give a boost to this asset class.

“Today, there are thresholds. If you look at an insurance company, they can’t put in more than 3 per cent of the AUM into units of REIT. There are a few insurance companies on the private side, which are already close to 3 per cent. Even if they want to invest more, they can’t, due to the threshold. If you look at pension funds, REITs and InvITs are allowed in a bucket of alternate asset class, which is 5 per cent,” pointed Preeti Chheda, the CFO of Mindspace Business Parks REIT.

Even mutual funds today can’t invest over 10 per cent of their net asset value in REITs and InvITs.

Markets regulator SEBI is taking steps to make REITs and InvITs more attractive as an asset class. For instance, it has earlier this year released a consultation paper, proposing the classification of REITs as equity instruments, compared with their current classification as hybrid security. It has also proposed increasing the overall exposure of equity and hybrid funds to REITs and InvITs.

Should that happen, then certainly more money will flow into REITs and that will further drive the growth of existing REITs, as well as attracting more companies to list their REIT assets, point analysts.

“The momentum of REITs in India is steadily gathering pace, fuelled by rising investor confidence and growing focus on institutionalisation of real estate. Office REITs have performed well and currently have a market penetration of around 16 per cent. With strong fundamentals in play, 25-30 per cent of the overall office stock in India can potentially come under REITs by 2030,” said Vimal Nadar, senior director and head of research at Colliers India.  

The REITs currently listed are mostly in the office market, while there is one retail sector REIT. Datacentres is one emerging segment, and one could also see REITs expanding into other segments like warehousing and hospitality.