July 28, 2020 / 12:38 PM / 6 days ago

Breakingviews - Investors lead the rush back into India’s offices

A general view of Mumbai's central financial district, India June 13, 2017.

MUMBAI (Reuters Breakingviews) - Work-from-home will be a passing fad in India, at least that’s what investor are signalling. Sovereign wealth fund GIC and The Monetary Authority of Singapore are lead investors in the initial public offering of Mindspace Business Parks. That’s a solid endorsement from an island nation that’s championed such tightly-regulated real estate investment trusts.

The Mumbai debut will value Mindspace, which counts K Raheja and Blackstone as investors, at up to $2.2 billion. It builds on last year’s successful listing of the larger Embassy Office Parks, India’s first publicly traded real estate trust also backed by Steve Schwarzman’s Toronto-based investor. Since its float last April, the REIT has delivered a total shareholder return of 22%, Eikon data shows. In comparison, the Nifty 50 Index delivered a negative 3% over the same period. Chunky pay-outs have helped: Embassy’s stock offers an almost 7% yield, higher than coupons on India’s 10-year bonds.

Mindspace looks set to be equally generous. The commercial property company has total leasable area of 29.5 million square feet spread across Greater Mumbai and beyond, and tenants include affiliates of Amazon and Facebook. The IPO, likely to price at the top of the range, will prise open a hard-to-access part of the real estate sector dominated by large funds.

Indian office space looks appealing in normal times. New projects have kept a measured pace with demand compared to the oversupplied and fragmented residential market. And local tenants tend to sign contracts of at least five years that usually include a price hike every three years. A further increase usually comes when the contracts end and are renewed.

Covid-19 has kept many Indians from returning to the office but Embassy and Mindspace have continued to collect over 95% of rents in recent months. The pandemic might make the medium-term outlook even better. A labour shortage and developers facing a financing squeeze could see supply fall significantly, for example.

At the start of the outbreak, global companies initially embraced working from home. But many are now turning cautious on the merits of remote working as productivity starts to fade and maintaining a workplace culture grows harder. India’s patchy internet doesn’t help. For now, well-heeled investors are leading the rush back into offices.


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