Higher institutional investments in India’s office real estate segment could be driven by attractive opportunities in real estate investment trusts (REITs), according to a recent report by Nuvama. The report highlighted that, “Over the medium term, attractive REIT opportunities in India are likely to lead to higher institutional investments in the office space.” REITs, or real estate investment trusts, are structured like companies that own and operate income-generating real estate. They lease out properties, collect rent, and distribute the rental income among shareholders, offering a structured and transparent investment route.

Shift in Private Equity Preferences

The report noted that private equity (PE) investments remained cautious during 2022 and 2023 due to inflationary pressures and rising interest rates. PE flows into office spaces slowed significantly in calendar years (CY) 2023 and 2024. “CY23 and CY24 have experienced lower PE investments in the office segment. This is partly also due to a shift in investor preference towards the residential sector, which is currently booming and attracting investments through the promise of higher returns,” the report stated.

Focus Moves to Ready Assets

Nuvama highlighted a significant shift in investment patterns. In CY21, only 14 per cent of investments were directed toward completed office assets, while 59 per cent went into new and under-construction projects. By CY24, that trend reversed sharply. “In CY24, 82 per cent of the investment was in ready assets,” the report mentioned, reflecting growing investor focus on operational properties that generate immediate rental income.

Strong Demand Supports Office Market Recovery

The report observed that CY24 marked a robust period for India’s office space sector. Demand reached an all-time high, while completions fell, aiding vacancy correction. This momentum continued into the first quarter of calendar year 2025 (Q1CY25), further supporting positive sentiment in the office space segment.

Supply to Match Demand in Near Term

Looking ahead, the report expects supply and demand to remain largely balanced over the next year. “We forecast vacancy levels shall decline marginally over the medium term. We believe the pace of increase in rents shall gain momentum going ahead,” Nuvama added.

(With Inputs From ANI)

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