ICRA Forecasts Substantial Growth with 53 Million Sq Ft of Office Space Eligible for SM-REIT Listing

Rating agency ICRA has unveiled a promising outlook for small and medium Real Estate Investment Trusts (SM-REITs) in India, estimating that around 53 million square feet of office spaces are eligible for listing. This forecast indicates a substantial monetization opportunity, ranging between Rs 67,000 to 71,000 crore, signaling significant potential for growth and development in the real estate sector.

The recent amendments made by the Securities and Exchange Board of India (Sebi) to the REITs Regulations, 2014, have paved the way for the emergence of SM-REITs. Unlike traditional REITs, which typically require a minimum asset value of Rs 500 crore, SM-REITs have a lower threshold of Rs 50 crore. This regulatory shift aims to democratize real estate investment, providing smaller developers with access to capital markets and creating new avenues for growth and investment.

Under the revised regulations, the minimum price of each unit of an SM-REIT scheme is set at Rs 10 lakh, with the asset value ranging from Rs 50 crore to less than Rs 500 crore. This framework aims to foster inclusivity and encourage participation from a wider range of investors, thereby enhancing liquidity and efficiency in the real estate market.

Rajeshwar Burla, Senior Vice-President & Group Head - Corporate Ratings at ICRA, emphasized the transformative potential of SM-REITs in enabling small Grade A and Grade B office developers to monetize their investments. This move is expected to stimulate economic activity, unlock the value of smaller office spaces, and catalyze growth across the real estate ecosystem.

However, Mr. Burla highlighted the potential challenges posed by the minimum unitholding requirement for SM-REITs, which could impact scalability and investor participation. Nonetheless, with an estimated 52-53 million square feet of SM REIT-ready office spaces across India's top seven cities, the market potential for SM-REIT listings remains robust and promising.

ICRA's analysis underscores the importance of regulatory reforms in driving innovation and fostering growth in the real estate sector. As SM-REITs gain traction and investor confidence, they are poised to play a significant role in reshaping India's real estate landscape, unlocking value, and driving sustainable growth in the years to come.

With an estimated monetization opportunity of Rs 67,000 to 71,000 crore, SM-REITs have the potential to channelize investment, spur development, and fuel economic progress, contributing to India's journey towards becoming a globally competitive real estate market.