Reits climb the office ladder, valuations keep rungs in place

Even as concerns grow over the residential real estate market reaching its peak, the outlook for office real estate remains strong, with listed real estate investment trusts (Reits) standing to benefit from sustained demand in the segment.

- RAM PRASAD SAHU

A recent HSBC report flagged early signs of a slowdown in the residential sector. Analysts Puneet Gulati and Akshay Malhotra highlighted factors such as declining unit sales, uneven city-wise performance, plateauing apartment sizes, and a bottoming out of unsold inventory as indicators of a maturing market.

While some brokerages have cut estimates and target prices for listed residential players, commercial real estate and Reits have drawn investor interest. These stocks have outperformed broader markets this year, buoyed up by steady leasing activity and consistent dividend growth.

According to analyst Abhinav Sinha of Jefferies Research, office Reits have outpaced the BSE Realty by 20-30 percentage points year-to-date after two years of underperformance. He attributes this turnaround to strong office demand, declining yields, and valuations trading below net asset value, which have supported Reits amid broader market weakness.