New Delhi, [India] June 23 : Domestic commercial office real estate investment trusts (REITs) are set to expand leasable area by 40-45 million square feet (MSF) to 190-195 MSF by the end of next fiscal, a growth of 25-30 per cent, driven by planned asset additions and the recent listing of a new REIT according to Crisil Ratings.
Credit profiles are expected to remain healthy on steady rental income growth, high occupancy and controlled leverage, the ratings agency said.
Crisil Ratings' analysis of five listed commercial office REITs, including the one listed this fiscal, shows the expansion will be led by inorganic additions. Of the 40-45 MSF increase in leasable area, 16 MSF will come from the recent listing of a new REIT. Inorganic addition of operating assets is expected to dominate as it keeps REITs away from construction-related risks. From the first listing seven years ago to fiscal 2026, 75 per cent of their total asset additions were through acquisitions.
Crisil Ratings said demand remains robust across sectors. "Addition in commercial office space is accompanied by healthy demand growth from flexible workspace operators, banking, financial services and insurance institutions, and global capability centres cutting across sectors," said Gautam Shahi, Senior Director, Crisil Ratings.
"This, combined with their good location and high quality, will keep occupancy at a stable 92-93% for REITs this fiscal, higher than the occupancy of the overall commercial office sector," he added.
The agency noted that sustenance of strong occupancy along with contracted rental escalations will enable REITs to maintain a healthy profit (EBITDA) margin of about 70%, supporting cash flows. However, since REITs distribute most surplus cash flows to unitholders, asset additions will need to be funded through debt.
Nevertheless, Crisil expects the overall loan-to-value ratio to remain stable at 26-28% through fiscal 2028, similar to the March 2026 level, as growth in debt is expected to be offset by a commensurate increase in gross asset value based on discounted cash flows. Right of first offer on assets developed or acquired by sponsors on their own platforms will continue to support growth.
REITs' business profiles remain supported by diversified asset portfolios across sectors and geographies. The top three sectors and top three locations account for approximately 70-75% and 60-65% of total leasable area, respectively. Crisil said any potential disruption caused by artificial intelligence or a global slowdown impacting occupancy, and any further listing of REITs, will bear watching.