Embassy REIT ups leasing guidance as demand picks up driven by global captives

Backed by increased leasing momentum from global captives, that have been off-setting exits by IT majors and an 8-10 per cent increase in lease rentals, Embassy REIT, Asia’s largest real estate investment trust, has upped its FY24 leasing guidance by 8 per cent to 6.5 million sq ft (msf), from the previous 6 msf.

Leasing in FY23 was 5.1 msf and was upped in Q1FY24.

According to Aravind Maiya, CEO, Embassy REIT, the demand from mutlinationals setting up global captive centres “has been strong” and there is a rise in request for proposals over Q2. Same store occupancy to improve to 85 per cent by the end of the fiscal, over the existing 83 per cent in H1FY24.

Exits were around 2.3 msf (including 1.3 msf in the IT space) and nearly 1 msf was immediately leased to global captives. Global captives have been investing in front -end, and with back-to-office resuming across these majors, the demand for large spaces are up.

“The IT/ITES who are witnessing low physical occupancy and driving early lease terminations, and there were two big ticket exits for us in H1FY24. These were to the tune of 0.8 msf and 0.5 msf. However, the exits were made up by global captives and increased leasing activities. Most of these were high end investments and for large spaces,” he told businessline.

Leasing deals

Of the 25 leasing deals inked in July – September period, seven of them were in the size of 1,00,000 sq ft and above, indicating a “slow return” in the segment. In Q1 (April – June), the demand was mostly for medium-sized spaces and Embassy REIT had inked 2-odd deals for spaces exceeding 1,00,000 sq ft.

“Of the 1.2 msf pre-commitment that we received for Q3, there are a couple of large deals. And over the next three to six months, the large deal momentum is expected to come back. So, with global captives upping their presence in India, and rents moving up by 8 -10 per cent, and with a positive outlook, the leasing guidance for the fiscal is now upped to 6.5 msf,” Maiya said.

Embassy REIT leased 3.1 msf of space in H1, and its H2 pipeline currently stands at 2.5 msf – with 1.3 msf being commitment in existing spaces and the remaining 1.2 msf being in the development pipeline.

In all, the REIT plans to bring on – board 7 msf-odd of space over the next two-odd fiscal, with cash flows from these accruing, post stabilising, in another 3-4-odd years.

Occupancy levels at Bengaluru – Embassy REIT’s key market – was at 90 per cent; while for Mumbai – the second biggest market – was 96 per cent. However, Noida and Pune properties continue to have lower occupancies of around 69 per cent and 62 per cent, respectively. Numbers across these two cities are expected to improve as infra developments pick up.

“Over the next two to three years, we are expecting to be back at pre-Covid levels of occupancies across these places,” Maiya said, adding that although the company continues to be keen to enter Chennai, “its current stock prices do not help in inorganic growth”.