Geopolitical Tensions Boost Demand for REITs in India's Office Real Estate Market
War never brings good news. But the West Asian geopolitical crisis has halted an information technology (IT) sector-led sell-off in domestic office real estate investment trusts (REITs) as investors flock toward defensive, income-generating assets amid volatility.
REITs have held up better than the broader market so far this year, falling around 2% on average year-to-date, while the benchmark Nifty 50 is down about 7%.
Analysts attribute this resilience to the quasi-debt nature of these trusts. Unlike most equities that typically depend on capital gains, REITs distribute 90% of their rental income, offering annual yields of about 6-7%, similar to the current benchmark 10-year government bond (G-sec).
“There is potential for capital appreciation too as rents grow and land values rise,” said Shobhit Agarwal, chief executive officer of Anarock Capital. “That can generate better long-term returns than fixed deposits. But right now it is a relatively safe place to park money until the geopolitical uncertainty subsides.”
Pankaj Kumar, vice president of fundamental research at Kotak Securities, said the IT-led correction last month and the subsequent war-driven sell-off have made REIT valuations more attractive, while their medium-term fundamentals remain intact.
“Demand for grade-A office spaces will continue to outrun their supply at least for the next few years. This leaves room for stronger growth in rental income and payouts,” Kumar said.
A recent Kotak Institutional Equities report highlighted that commercial real estate vacancy fell 160 basis points year-on-year to 12.3% in the December quarter, returning to levels last seen just when the pandemic struck, as office absorption outpaced fresh supply.
Average occupancy across domestic REITs rose to about 93% in Q3FY26 from 90% a year earlier, as global capability centres (GCCs) and flexible workspace operators drove fresh leasing demand.
Supply of quality office space has remained tight since the pandemic disrupted workplace dynamics, while demand has strengthened and broadened beyond IT, supporting REITs over the past 12-18 months, said Shobhit Mathur, co-founder of Ionic Wealth.
Yet, experts warn the excess-demand tailwind may be temporary and may not fully offset a slowdown in leasing from IT firms. Demand from top-tier IT companies remained weak as they continued to cut net headcount amid falling employee utilization in the December quarter, with no meaningful hiring recovery expected soon, the Kotak report noted. As a result, the share of IT services firms in Grade-A leased space has dropped to about 30% from 45% three years ago.
Even so, REITs’ exposure to IT remains significant. The five listed trusts earned about one-third of their gross rental income from IT tenants in Q3FY26, according to Anarock Capital. Embassy Office Parks REIT has the highest IT hub exposure, with two-thirds of its portfolio in Bengaluru. Meanwhile, Hyderabad accounts for 43% of Mindspace Business Parks REIT’s portfolio, leaving both vulnerable to future disruption in the software services sector.
That’s why Embassy and Mindspace bore the brunt of the IT sell-off, falling nearly 8-9% between 12 and 27 February, while other REITs declined about 4% on average.
“IT firms were already facing weak discretionary tech spending from clients. The Anthropic disruption has now raised fears that AI-led productivity gains could compress pricing and profitability and lead to more layoffs or slower hiring,” said Anshul Jethi, IT research analyst at LKP Securities. “Because office leasing decisions are closely tied to hiring expectations, IT’s concerns have spilled over into REITs.”
According to Shashank Udupa, a Sebi-registered research analyst and smallcase fund manager, markets appear to be pricing forward leasing risk rather than current operating stress in REITs.
“With occupancy levels still around 90-95% and long lease tenures, most rental cash flows remain contractually locked in,” he said. “The concern is about the leasing environment when these contracts come up for renewal.”
Udupa noted that office REITs are currently offering yields of about 7.4-7.8% after the recent sell-off, compared with roughly 7% for the benchmark G-sec. “The widening spread suggests the market is demanding a higher premium from REITs due to concerns over IT-sector exposure.”
Kotak Securities’ Kumar, however, argued the higher yields make REITs attractive as a short- to medium-term defensive bet amid global volatility. “Investors can lock in these yields over the next five to seven years, given the average lease expiry across major REIT portfolios stands at about seven years.”
Embassy and Mindspace gained 5% and 3%, respectively, between 4 and 6 March, as investors resorted to value-buying in defensive assets amid the US-Israel-Iran conflict. But the rally faded this week as rising crude oil prices unsettled the broader market.
Still, experts believe the sell-off in REITs may have been excessive. “Only about 10-15% of leases are up for renewal over the next two years, which limits the risk of near-term cash flow disruptions,” Jethi of LKP Securities. “The market may have overreacted to REITs.”
