Strong demand from e-commerce and IT companies has led to the pre-leasing of almost all the stock coming up in next two years. Over the last six months, large e-commerce players like Flipkart and Amazon have signed 2msf and 1msf of space which are going to be completed over next one to two years. Consultants like JLL note that RFP (request for proposal) for almost 4-5msf are still floating in the market mainly from e-commerce and BFSI companies
Amongst tier 1 cities in India, the fundamentals of commercial real estate are the strongest in Bangalore with ~8% city-wide vacancy. In CY14, it accounted for ~40% of all India leasing. JLL expects vacancy to remain <10% until CY16E end. Additionally, strong demand and low vacancy should help companies push 3-5% annual hike in rents.
Developers were happy with the waiver of MAT (Minimum alternate tax of 20%) on sponsors when they swap their assets for units of REITs. While dividend distribution tax at SPV level remains, yields can be improved by having debt-heavy SPVs. Most developers are,
however, waiting for G-sec yields to fall to ensure a positive yield spread and hence, create a vibrant demand for REIT papers.
