Vacancy Levels in REIT-run Offices Rise In Over a Year

Embassy, Mindspace and Brookfield REITs suffer as tenants vacate prime space

New Delhi: Vacancies in the office portfolio of three real estate investment trusts (REITs) of Embassy, Mindspace and Brookfield, and the country’s largest real estate developer, DLF, increased sharply between March 2020 and June 2021 after tenants exited prime office space due to the Covid-19 pandemic, according to the quarterly reports of these companies.

DLF’s office portfolio saw vacancies rise to 14% in June this year from 3% in March 2020, while the vacancy level in Embassy REIT increased to 11.2% from 7.2% during this period.

These two real estate firms together operate more than 60 million sq ft of grade A office space across the country. The vacancy level in the Brookfield REIT portfolio went up to 11% in June from 8% in September 2020. Office assets of Mindspace REIT saw vacancy level rise to 15.6% in June from 11.1% in September last year.

There was a reduction in the overall portfolio occupancy levels by 4-6 percentage points on a like-tolike basis for Embassy REIT, Mindspace REIT and DLF while Brookfield REIT maintained flattish occupancy levels in the second half of 2020-21, according to ICICI Securities. The four companies did not respond to ET’s email queries.

“While the second Covid wave may lead to further rise in vacancy levels in Q2FY22, we expect this trend to reverse from H2FY22E assuming that vaccinations pick up accompanied by a gradual return to offices and possible pick up in international travel,” said a report by ICICI Securities. Grade A vacancy levels across India's top seven cities rose 3-8% till June since the onset of the Covid-19 pandemic in March 2020, as per the ICICI Securities.

Among these, the Hyderabad market saw the highest rise in vacancy levels to 14% in the second half of 2020 from 5.5% during the first half of the year owing to a combination of tenant exits and enhanced supply. In Mumbai Metropolitan Region, the vacancy increased to 22.1% from 19.8% while in National Capital Region the vacancy reached 26.6% from 23.1%.

In Bengaluru, the vacancy level increased to 9.3% from 6.3%.

“As Covid-19 hit India, the corporates waited till June before taking any decision. After the second wave, even big companies vacated grade A assets, with many of them adopting hybrid work models,” said a consultant with an international property consultancy firm, who did not wish to be identified.

Indian REITs and large office developers, however, saw strong rental collections of over 98% in 2020-21 and were able to achieve doubledigit re-leasing spreads along with contractual escalations.

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Source: epaper.timesgroup.com/