Indian Office Market Set for Promising Growth: HSBC Report

A report by HSBC Global Research highlights a positive future for India's office real estate market. Despite previously underperforming, office REITs are set for growth given strong fundamentals and a resilient market. Consistent demand from multinational firms continues to bolster the sector.

India's office real estate sector is on the brink of a promising growth phase, according to a recent report by HSBC Global Research. The analysis reveals that, despite lagging behind the broader market for the past five years, India's office Real Estate Investment Trusts (REITs) have started showing positive trends over the last year, signaling potential growth.

The report states, 'Despite the strong economy, India office REITs have significantly underperformed the broader market for five years.' However, analysts see more room for growth as the market has not yet fully absorbed the robust fundamentals underpinning it.

Since 2011, office rentals in India have consistently grown, yet the stock prices of office REITs have not followed this upward trajectory. This suggests current valuations are attractive, presenting 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 noted that the Indian market is in a structural upcycle, with Grade A office rents steadily rising since 2001. The resilience of the Indian office market is underscored by its stability during the COVID-19 pandemic, where rental rates remained stable even during lockdowns.

While rapid sector growth can often lead to asset bubbles, the report underscores that India's annual rental growth rates have been moderate, supporting stability. Moreover, the demand for office space is further supported by multinational corporations expanding their global capability centres in India, which account for approximately 35-40% of total demand. This expansion is expected to significantly benefit the office market.

The report concludes with an optimistic outlook for the Indian office market, underpinned by solid economic fundamentals and sustained demand from multinational firms.

(With inputs from agencies.)