Real estate investment trusts (Reits) are in the limelight following the Securities and Exchange Board of India’s recent decision to reclassify them as equity instruments, a change from their earlier categorization as hybrid instruments. This move paves the way for their inclusion in equity indices, higher mutual fund allocations, and increased participation from institutional investors.
The timing couldn’t have been better. The outlook for Reits appears positive, driven by strong demand for high-quality office spaces in major Indian cities. Leasing activity from domestic companies in the BFSI (banking, financial services, and insurance) sector, along with flex spaces and global capability centres (GCCs)—foreign firms that establish back-office and R&D operations in India—is expected to maintain healthy absorption of office spaces and boost occupancy rates.
This optimism is reflected in the market. So far, in calendar year 2025 (CY25), shares of major Reits like Embassy Office Parks Reit, Brookfield India Real Estate Trust, Nexus Select Trust and Mindspace Business Parks Reit have surged by 12-22%, significantly outperforming the Nifty’s 6% gain.
Rising occupancy and earnings
Reits are actively working to increase their occupancy rates.
Embassy aims for a portfolio occupancy of 90-91% by area, including Quadron, by the end of fiscal year 2026 (FY26), up from 88% in the June quarter (Q1FY26). Similarly, Brookfield is targeting 93% occupancy by the end of the year, a rise from approximately 89%.
Mindspace anticipates committed occupancy will reach 95% (excluding Pocharam) from 93.7% in Q1FY26. Additionally, the government’s relief in December 2023, allowing the conversion of Special Economic Zones (SEZs) into non-SEZ office spaces, is further boosting occupancy.
Rising occupancy is expected to improve key earnings metrics for these listed Reits, which should, in turn, increase distribution per unit (DPU). DPU is a crucial metric that measures the income distributed to investors from sources like rental income and dividends.
“On a 12-month rolling basis, we expect Reits under our coverage to give 6-6.5% distribution yield which is similar to previous years,” said Karan Khanna, lead analyst, small and midcaps, hotels and properties at Ambit Capital. “While GCCs are at the forefront of boosting demand, mass AI-led layoffs in the Indian IT industry could be a potential downside risk to office space demand and hence for Reit earnings,” he cautioned.
Expansion and diversification
Reits are diversifying their tenant base to reduce reliance on the technology sector, though this is a gradual process. They are also expanding their portfolios to tap into rising demand.
Mindspace Reit, for example, acquired its first third-party asset, “Q-City” in Hyderabad. Brookfield is raising ₹1,000 crore through a preferential issue to fund future acquisitions and is targeting new markets like Bengaluru and Chennai.
Listed Reits currently contribute an estimated 10-12% of the total office stock in key Indian cities. The overall supply of new office space is growing, with a 25% year-on-year increase to 24.51 million square feet (msf) in the first half of CY25, according to data from Anarock Property Consultants. Pan-India rentals also rose 4% year-on-year to ₹88 per square foot per month.
New supply is projected to touch 62msf in CY25 and Anarock estimates gross absorption of 81msf in CY25. For now, demand-supply dynamics are favourable, but a rapid rise in supply could weigh on occupancies and rentals if leasing momentum softens.
“Near-term, risks stem largely from tariff uncertainties and prolonged global geopolitical tensions, which could lengthen the decision-making cycle of large corporates, particularly those headquartered in the US,” cautioned Anuj Puri, chairman, Anarock Group.
