20-05-2025
Are REITs the stability your stock portfolio needs now?
Six years ago, I wrote an article laying out five solid reasons why REITs (Real Estate Investment Trusts) could be a smart option for retail investors. It was April 2019, and India had just listed its first REIT—Embassy Office Parks. The idea was compelling: you could finally own a piece of India's best office buildings, enjoy steady dividend income, and ride the wave of commercial real estate growth. What wasn't to love?
Now that we have four REITs — three office-focused and one in retail—it's time to ask: have REITs delivered? And are they truly the stabilisers your stock portfolio needs?
Let's start with hard data. The four listed REITs distributed ₹6,070 crore to shareholders in FY25, a 13% jump from a year ago. Seems great, doesn't it? But dig deeper, and the shine fades.
Here's the breakdown.
Embassy Office Parks REIT, India's first listed REIT, debuted at ₹300 a unit. Nearly six years on, it's trading around ₹385. This translates to a modest 4% annual unit price growth.
Brookfield India REIT launched in February 2021 at ₹275 and now trades around ₹299. Price appreciation has been minimal—roughly 2% annualised.
Of the three office REITs, Mindspace Business Parks REIT has delivered the best returns. Since its IPO at ₹275 in August 2020, the unit price has risen to ₹395—translating to a ~7.5% annualised capital appreciation.
The dividend yields across all three have been similar, at 6-6.5%. Consequently, their overall returns vary quite a bit, with the Mindspace Business Parks REIT delivering 13% plus while Brookfield India REIT only managing 8.5% annualised returns since listing.
Interestingly, the most impressive REIT performance hasn't been in the office space, but in retail. The Nexus Select Trust REIT marks two years on the stock exchanges this May and its unit price has appreciated from ₹100 to ₹131, translating to an annualised return of around 14%. Add to that a dividend yield of around 6.5% each year, and investors have made a handsome 21% per annum on this investment.
· REITs are not a "fill-it, shut-it, forget-it" investment. In the case of an underperforming REIT, an investor who bought in on Day 1 and held on could see annualised returns as modest as 8.5%. While this beats a fixed deposit, it's roughly at par with debt mutual funds and yet carries a higher market risk.
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· Timing matters. Entering a REIT at its high can be costly. Take Embassy REIT, for instance. If you bought at its peak of ₹467 in 2020, your dividends wouldn't have cushioned the fall. Same with Nexus Select. Despite being the best-performing REIT, if you jumped in during the August 2024 euphoria at ₹150, you're still waiting to break even.
· Let's discuss dividends. Those initially promised yields of 7.5% to 8% lasted only a few quarters before the pandemic struck. Today, dividends hover around 6%. So yes, while dividends are steady, they are not spectacular. And your true upside depends on the price appreciation of the listed unit.
Occupancy of Office REITs is a niggling concern. When Embassy REIT listed, its top-tier Grade A offices reported a 95% occupancy. Four years post-COVID, they're still well below their peak. Embassy and Brookfield REITs hover at 87% and 88% occupancy, respectively, and only Mindspace has crossed over to a 91% occupancy. The figures reported by listed REITs are of gross leasing, and not net leasing, which isn't the best practice. Net leasing gives a more accurate picture of the real change in occupancy.
Then comes the question around assets transferred to the REIT. Since the sponsor and REIT are the same— Embassy Group owns Embassy REIT, K Raheja owns Mindspace, and Brookfield owns Brookfield REIT — it's unclear how fairly assets are priced when moved into the REIT. Transfer of assets in the previous financial year like Embassy Splendid TechZone, Candor TechSpace N2, and Mindspace's Hyderabad commercial asset, were all claimed to be at a discount to the market value—but who's verifying that? The overlap between sponsor and REIT calls for greater scrutiny and stronger safeguards for investors.
If you're looking for a portfolio diversifier that offers steady income with relatively low downside, REITs fit the bill. But if you're chasing growth with a surety of double-digit returns, dial down those expectations.
Also, know that all REITs are not equal, even though they wear a similar badge of being India's top grade A office asset owners. The quality of management matters. Returns vary quite a bit. Just like stocks, REITs demand homework and an entry at a fair valuation. Retail investors would do well to stay informed and stay discerning.
Manisha Natarajan is a well-known editorial voice in Real Estate and Sustainable Built Environment.
