From the real estate sector, the brokerage firm ICICI Securities has picked up DLF with a buy rating, Embassy Office Parks REIT with a buy rating, Mindspace Business Parks REIT with a hold rating, Brookfield India REIT with add rating, Oberoi Realty with a hold rating, The Phoenix Mills with a buy rating, Prestige Estates Projects with add rating, and Brigade Enterprises with buy rating as its top stock picks.
The brokerage has said “The Indian Commercial Real Estate (CRE) office market saw Q1CY22 (Jan-Mar’22) net absorption rise 65% YoY to 6.0msf along with pre-commitments of 3.2msf for larger transaction sizes which augurs well for a recovery in the remainder of CY22E. For CY21, overall net absorption has remained flat YoY at 20msf and we expect net absorption to rise from Apr’22 onwards (factoring in Omicron disruption) and estimate net absorption of 26.8msf in CY22E and 30.0msf in CY23E.”
According to ICICI Securities “With India continuing to offer competitive rentals of ~1USD/psf/month in IT/ITeS driven markets of South India and NCR/Pune and robust hiring plans of domestic/MNC IT/ITeS companies, we expect this to result in pickup in office absorption over CY22-24E. While the jury is out on the eventual outcome of the back to office plans of various corporates, broad consensus is that 15-20% of employees may permanently Work from Office (WFO), 10-15% of employees may permanently Work from Home (WFH) while balance 60-70% of employees may work under a hybrid model of WFO with WFH.”
“We remain bullish on office asset developers and reiterate our positive stance on DLF, Embassy REIT, Mindspace REIT, Brookfield India REIT and Brigade Enterprises. Key risk to our call is the emergence of further Covid waves and global/domestic inflation related risks,” ICICI Securities has further claimed.
The brokerage has said “We have factored in a fall in occupancy levels of 200-300bps for the REITs in FY22E but expect the same to reverse by the end of Q4FY22E (Mar’22E) with a full-fledged recovery from FY23E. We expect the three REITs to offer distribution yields of 6-7% over FY23-24E along with 3-17% capital appreciation as per current I-Sec target prices. While a rise in global interest rates is the key risk, cumulative potential returns of 10-22% provide adequate valuation cushion, in our view.”
ICICI Securities has also highlighted that “Our view is that the Indian office market retains many positives such as: 1) Limited number of 8-10 pan-India developers capable of building quality rental assets; 2) India remains one of the more affordable office markets in the world, with average rentals for Grade A office markets in peripheral/suburban micro-markets hovering around 1 USD/psf/month or Rs70-75/psf/month; 3) India leads in STEM (Science, Technology, Engineering, Mathematics) talent for technology assignments with 2mn new graduates annually.”