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Global investors buy $2 billion office space in 2014

The Times of India:  December, 2014

Bengaluru: Foreign investors have bought tenanted office space worth over $2 billion in India in the current calendar, a four-fold rise compared to the previous year in their appetite for rent-yielding commercial assets in Asia's third largest economy.

Data sourced by TOI suggests that $2.23 billion or over Rs 14,000 crore worth of built and tenanted office space has been bought by foreign and, to a small extent, Indian investors across the country's key metros of NCR, Mumbai, Bengaluru, Pune, Kolkata, Chennai and Kochi. The comparative number during 2013 stood at $570 million, signalling how the office property market has come of age in the current calendar.

With a burgeoning middle-class, India's residential property market has always been the go-to investment destination for bulge-bracket global fund houses and small-fry Indian retail investors. But that's changing at least for the big global investors who have taken a liking to India's commercial assets, which is riding on the services economy with stable yields.

Two of the world's largest and prolific real estate investors — New York-based Blackstone Group and Canadian firm Brookfield Asset Management — alone have bought into buildings with an asset value of almost $2 billion or Rs 12,000 crore. While Brookfield picked up six IT SEZ assets from NCR-based property developer Unitech valued at $850 million, its rival Blackstone bought into office assets worth $870 million. The figures mentioned are the asset value of the acquired properties and not the size of equity cheques cut by them.

"This would be a record year for the commercial property market. It also shows that foreign capital was less risk averse and preferred to invest in stable rent-yielding office assets," said Anshuman Magazine, CMD of property consultancy firm CBRE South Asia. Investor sentiment has also been bolstered by Indian market regulator Sebi issuing guidelines for the listing of real estate investment trusts (REITs) and the Union government's decision to ease FDI restrictions in real estate.

Blackstone-backed Embassy Office Parks, RMZ Offices, in which Qatar Investment Authority is an investor, and K Raheja Corp have all been working on various listing or value unlocking moves, but are waiting for more clarity on the tax implications of an Indian REIT before beginning a formal process.

Blackstone's asset buys in 2014 include the iconic Express Towers in Mumbai ($150 million), the 106-acre Vrindavan Tech Village in Bengaluru along with its southern JV partner Embassy group ($300 million), and Oxygen IT SEZ in Noida ($100 million), among others. Xander, another global fund house, bought the TRIL IT Park in Mumbai from the Tatas, valued at $100 million.

There's more action building up in the new year as private investors, pension funds, Wall Street banks and sovereign wealth managers are deploying more capital to chase Indian commercial real estate.

Canadian Pension Plan Investment Board (CPPIB) along with Shapoorji Pallonji and Dutch pension fund APG and GIC of Singapore are among the investors who have committed fresh capital.

The Indian economy seems to be the only one among all major emerging economies that is poised for improved growth in the next financial year, said Anuj Puri, chairman and country head of JLL India, adding that "we are definitely going to see some interesting office space action in 2015". The current weakness in the Indian rupee too provides foreign investors with the opportunity to invest deeply in Indian commercial real estate assets, Puri said.

India's office property market is still minuscule even when compared to the neighbouring South East Asian region, pegged at $125 billion. Reason: Almost 80% of the 400 million sqft A-grade office space in the country is held through strata titles, a form of ownership where each floor of a building is owned by multiple investors.