IGI Logo

Momentum in office leasing picking up

Capitalizing the opportunities in supply constrained markets

We attended the analyst meet and the tour of Mindspace REIT’s (MREIT) assets. The management is focusing on three key pillars: a) office leasing, b) low density offering, and c) ESG. The key takeaways from our interaction are detailed below:

* Physical occupancy is expected to increase to 60-70% by year-end from 30-35% in May’22. Momentum in office leasing is picking up given the strong traction in underlying businesses of tenants and accelerated shift towards Grade-A assets.

* MREIT’s low density offering with a focus on open green spaces will be a key differentiator in supply constrained markets such as Thane-Belapur and East-Pune.

* While the headline numbers for upcoming supply appears high on paper, construction has started on limited projects only.

* According to the practice, management refrained from giving any guidance but given the business visibility, it is confident of surpassing the FY22 distribution.

Physical occupancy on rise; office leasing recovery accelerates

* Physical occupancy has further increased to 30-35% in May’22 from 23% in Apr’22. Accounting for flexibility, the physical occupancy stands at 55-60%. The management’s discussions with occupiers indicate that physical occupancy is likely to cross 60-70% by year-end.

* The management reiterated its optimism of a strong leasing recovery over the next couple of quarters as it believes the Indian IT industry has reached another inflection point driven by increased spend on digitization.

* Further, GCCs are projected to report a 6-7% CAGR to reach 2,000+ by FY25 from 1,400+ in FY21. During the same period, the headcounts of GCCs are expected to grow 2x, reaching 2m by FY25, translating into a 12% CAGR.

Limited upcoming grade-A supply in MREIT’s markets

* While supply numbers as per data from international property consultants remain high, a large part of it continues to remain on paper as concrete pouring is limited. It gets further filtered out as far as Grade-A is concerned.

* Management expects 5msf of new office spaces in the Thane-Belapur belt. MREIT is the only player to bring supply in Airoli with rest of the supply coming up in parts of Juee Nagar, Ghansoli, etc.

* East Pune will see overall ~3msf of supply during the next two to three years v/s annual absorption run-rate of 2-3 msf and hence, management expects strong demand for its upcoming 1msf asset in Gera Commerzone – Kharadi.

* While Hyderabad continues to see huge supply with 22msf of office spaces expected to hit the ground over the next two years, as per management’s assessment only 5msf is likely to be of Grade-A quality.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaime