India's office real estate to surge amid robust fundamentals: HSBC Global Research
Sep 20, 2024
New Delhi [India], September 20 : The office market of India's real estate is poised for a promising future in the coming months, highlighted a report by HSBC Global Research.
The report noted that although India's office Real Estate Investment Trusts (REITs) have underperformed the broader market for the past five years, they have started to re-rate positively over the last year, indicating potential for growth.
"Despite the strong economy, India office REITs have significantly underperformed the broader market over for five years," said the report.
As per the report, the analysts believe there is more upside to come, as the market has yet to fully reflect the robust fundamentals that underpin it.
It added that since 2011, office rentals in India have shown consistent growth, yet the stock prices of office REITs have not matched this upward trend. This discrepancy suggests that current valuations are attractive, providing a compelling opportunity for investors.
"We see more upside. Despite consistent growth in office rentals since 2011, stocks have yet to fully price in the strong fundamentals and valuation is attractive" the report added.
The report added that the Indian market is particularly bullish as it is believed to be in a structural upcycle. Grade A office rents have steadily increased since 2001, and the pace of growth is strong and healthy, positioning India as a resilient player in the global office market.
Remarkably, the Indian office market emerged largely unscathed from the impacts of the COVID-19 pandemic. Rental rates remained stable even during lockdowns, highlighting the market's resilience.
"Rapid growth can lead to asset bubbles, but we are not concerned as annual rental growth rates have been consistently moderate," the report noted.
While rapid growth in any sector can lead to asset bubbles, analysts' as per the report expressed confidence in the Indian office market's stability. The demand for office space is further bolstered by the outsourcing trend, with global capability centres established by multinational corporations accounting for approximately 35-40 per cent of total demand. As these companies expand their operations in India, the office market is expected to benefit significantly.
The report mentioned a promising outlook for the Indian office market, supported by strong economic fundamentals and ongoing demand from multinational firms.
