Embassy Office Parks REIT expects demand to bounce back in early FY22

Occupancies may fall 100-200 bps in the coming quarters

Embassy Office Parks REIT expects demand for office properties to bounce back by early FY22, said a senior executive of the company.

Request for proposals for 9 million square feet of office space are active in the market, said Vikaash Khdloya, deputy CEO at the REIT, in an interaction with Business Standard.

"Over 90 per cent of it is from global captive centres and technology firms. This will translate in two to three quarters. We expect demand to rebound by early FY22," he said.

Khdloya said the REIT expects office leasing of about 500,000 sq ft every quarter in the next two to three quarters.

The REIT leased 545,000 sq ft in first quarter of this financial year .

"We expect similar demand for the next two to three quarters. We did about 1.2 million sq ft for the whole of last year, so Q1 numbers are really good," said Khdloya.

In the pre-pandemic period, the REIT used to do about 800,000 sq ft per quarter or around 3 million sq ft per year, he said.

"We were seeing good traction from tenants in January and February, but the second wave pushed everything out by two quarters," he said.

Rise in vacancies

“Occupancy numbers may fall by 100 to 200 basis points in the coming quarters but there will be no massive downside risk from there on,” he said.

Analysts have said that vacancies have fallen 4 - 6 per cent in properties of three listed REITs and it may rise further by 200 to 300 basis points impacting distribution of income.

Commenting on falling distribution of income, Khdloya clarified that the company has given a guidance on distribution per unit at Rs 21.50 for FY22 against DPU of Rs 21.48 last year.

Khdloya said occupancy levels were at 89 per cent in Q1FY22 which was similar to Q4FY21. Occupancy levels were at 92 per cent in Q1FY21.

However, given the pandemic year, the REIT has shown a resilient performance, he said.

"Last year, we collected 100 per cent of rental escalation on 8.8 million sq ft of properties. This year we will collect rental increase on 7.7 million sq ft of properties," he said.

He said the REIT has seen exits of 200,000 sq ft in Q1FY22.

"We gave a guidance of 1.9 million sq ft of expiry this year of which 500,000 sq ft is renewals and 1.4 million sq ft is exits. So the exits are in line with our guidance." he said.

Even during the pre-pandemic period, the REIT used to see exits of 1 million sq ft per year, he said.

He said the REIT has an acquisition pipeline of 32 million square feet of which 9 million sq ft is right of first proposal (ROFR) from sponsors and 23 million sq ft from partners or third parties.

The REIT will raise debt or equity to fund acquisitions.

He also said that valuations of Grade A properties have not fallen in the market.

#Embassy REIT expects leasing of 500,000 sq ft every quarter in the next 2-3 quarters.

#It leased 545,000 sq ft in Q1 against 1.2 mn sq ft in FY21

#Occupancy may fall by 100 to 200 bps, but no massive downside risk from there on.

#The company has given a guidance on distribution per unit at Rs 21.50 for FY22 against DPU of Rs 21.48 last year.

#Occupancy levels of 89 per cent in Q1FY22 which was similar to Q4 of FY21. Occupancy levels were at 92 per cent in Q1FY21.