The quiet rise of Indian REIT market: Why is the Knowledge Realty Trust IPO important?

India’s Real Estate Investment Trust (REIT) market continues to expand. Knowledge Realty Trust (KRT), a REIT sponsored by Bengaluru-based Sattva Group and asset manager Blackstone, received the green light from the Securities and Exchange Board of India to go public. The REIT issue is set to hit the market in August.

 

The total issue size, according to its draft prospectus, is ₹6,200 crore. However, KRT has already raised ₹1,400 crore from various investors in pre-IPO funding in June. This was India’s first REIT pre-IPO funding round. So, it is likely to raise ₹4,800 crore via the issue.

 

KRT will be the second-largest office REIT in Asia and the second-largest in India in terms of leasable area. As of September 30, 2024, its portfolio comprised 30 Grade A office assets, totalling 48.1 million square feet. This included 37.1 million square feet of completed area, 2.8 million square feet under construction and 8.2 million square feet of future development area. 

 

KRT will also be one of the most geographically diverse office REITs in India, with portfolio assets spread across six cities, which collectively represent more than 87 per cent of India’s office supply and gross absorption from 2016 to September 2024. 

 

In India, there are three other large office REITs, which include Embassy Office Parks REIT, which has a total leasable area of 51.1 million square feet, Mindspace REIT (from K. Raheja Corp) has 34.7 million square feet, and Brookfield India REIT has 28.9 million square feet of total leasable area.

 

KRT has said that it will use net proceeds from the IPO for partial or full repayment or prepayment of certain financial debts of the asset special purpose vehicles and the investment entities.

 

The KRT REIT issue comes at a time when India’s REITs have seen strong performance on the stock market. Over the past 12 months, REITs have seen returns of 15.2 per cent, which is significantly higher than the Sensex returns of 1.4 per cent.

 

REITs are essentially companies that own and operate income-generating realty assets, like commercial office parks, shopping centres, data centres and logistics parks. The income generated by the REIT is then distributed among the unit holders of the REIT. In the 2024-2025 financial year, India’s four large listed REITs distributed ₹6,070 crore.

 

Typically, quality office space is expensive and out of reach for many, especially retail investors. REITs then offer a great opportunity for such investors to get exposure to Grade A office space.

 

“REITs, from an investment perspective, have become a strong tool for retail investors to diversify their portfolios through safe tools. Due to access to a varied pool of strong rent-generating assets, it allows investors to access earnings of 7-7.5 per cent at a much lesser entry point,” noted Pawan Agarwal, MD NK Realtors.

 

According to Equirus Capital, since 2017-18, REITs have raised over Rs 31,241 crore. 

 

What’s driving the euphoria among investors for REITs is the strong office leasing activity. According to consultants CBRE, office leasing activity in the first half of 2025 rose about 3 per cent from a year ago to 39 million square feet, the highest on record for the first half of any year. In the same period, supply increased 19 per cent to 27.7 million square feet. 

 

While corporates, banking and financial services companies, flexi working spaces, as well as technology-led companies have continued to be among the large office occupiers, Global Capability Centres (GCCs) have been a very big driver of quality office space demand.

 

According to Cushman and Wakefield, at a pan-India level, GCCs have accounted for 28-29 per cent of gross leasing volume on average over the last four quarters up to the first quarter 2025. In contrast, office REIT landlords were able to achieve a much higher share, anywhere between 40-60 per cent of total leasing demand from GCC firms, rendering institutionally owned assets the preferred choice for many multinational occupiers, it pointed out.

 

“Multinational companies, especially GCCs, have driven record leasing activity, which now accounts for a significant share of the nation’s Grade A office stock. There has also been a growing preference among occupiers for premium grade assets, thereby significantly benefiting REITs,” said Somy Thomas, executive managing director, valuations and co-head capital markets at Cushman and Wakefield. 

 

He pointed out that the three office REITs achieved occupancy levels of almost 90 per cent in the first quarter. 

 

According to Agarwal of NK Realtors, the sell-side players, too, are extremely positive about this product, and one is likely to see many more REIT companies listing their REITs in the coming years.

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