India | September 2020

Private Wealth Group

(re)Imagine Real Estate

Investments
 The current situation with COVID-19 makes us think about what Benjamin
Franklin once said, that out of adversity comes opportunity. History abounds
with examples of individuals who made crucial decisions in difficult times and
saw fruitful results to their pursuits.

Making a fortune takes time and growth for high net-worth individuals (HNIs)
is often driven by their businesses and by making the right investment
choices. Traditionally, HNIs managed investments on their own, based on
their experience and keeping in mind their risk appetite. However, investment
decisions have become complex of late, mainly due to asset diversification
and varying risk-reward ratios. As a result, professional support for managing
wealth has become a specialised service increasingly availed by HNIs.

Real estate has been one of the oldest and preferred investment avenues
for this investor segment. In India, real estate is preferred due to its tangible
nature, stable income, steady returns and collateral value. These investments
have undergone a transition over the last decade and offices have become
one of the most preferred choices now. India has more than 600 mn sq ft of
Grade-A office space across its top seven cities in Q1 2020, and saw record
absorption, steady rentals and low vacancy levels until the onset of the global
pandemic. The office segment is expected to witness new trends and emerge
refreshed, once we leave the current pandemic behind us. We’re expecting
to see attractive investment opportunities in the strata office space, which is
estimated to be ~180 mn sq ft and is valued at ~INR 2.26 lakh crore (USD 30 bn).

The study of investments in real estate, which accounts for the largest share of
the HNI investment pie after equity, forms the basis of this report. The COVID-19
pandemic has impacted all economic activities, and investments are being
held back due to a high level of uncertainty in the market presently. The impact
on businesses and wealth erosion is expected to weigh on
the investment decisions of HNIs. We see challenging times
ahead and it is perhaps the best time to think through our
investments and make insight based decisions.

Take care and stay safe,

Ramesh Nair
CEO & Country Head,
India, JLL
RN.Office@ap.jll.com

Private Wealth Group: (re)Imagine Real Estate Investments 2

Office space offers secure and stable
investment options for HNIs in India

Population
USD 74 trn wealth India’s HNI population to touch
owned by 19.6 mn 330,400 in FY 2021-22 from
global HNIs in 2019 160,600 in FY 2016-17
Source: World Wealth Report 2020 from Capgemini, Top of the Pyramid report 2017, Kotak Wealth Management

Real estate investments in 2019

26% of overall 67% of Indian India’s second REIT
Indian HNI HNI real estate IPO over-subscribed
investments in investments in by 13 times in
real estate office space July 2020

46 mn sq ft record office space absorption Strong

in 2019; segment to recover fastest post COVID-19 investor appetite
pandemic due to robust fundamentals for office assets
Source: Top of the Pyramid report 2017, Kotak Wealth Management, JLL India Private Wealth Group survey, National Stock Exchange and JLL Research

India strata office investment opportunity

India’s strata Estimated value 49 mn sq ft
office market ~INR 2.26 highest strata leased
180 mn lakh crore office space market
sq ft (USD 30 bn) in Mumbai
Sources: JLL Real Estate Intelligence Service (REIS), JLL Research

Private Wealth Group: (re)Imagine Real Estate Investments 3

Increasing global wealth momentum in
challenging times
We have often witnessed that innovation, job creation and economic growth
lead to wealth creation. This provides a huge fillip to the economy. In 2019, the 19.6 mn HNI
wealth of global HNIs stood at USD 74 tn#.
While there are various definitions of the above-mentioned category of
own USD 74 trn
wealthy citizens, more often than not HNIs are described as a group with wealth - 8.6%
surplus asset holdings in the range of USD 1mn and above. This computation increase in 2019
of assets does not include their primary residence.

Exhibit 1 Global HNI wealth grew by 8.6% Y-o-Y in 2019 despite various global headwinds

USD 46.2 tn USD 63.5 tn USD 74 tn

2012 2016 2019

Asia-Pacific

Source: Capgemini Financial Services Analysis 2020, World Wealth Report 2020 from Capgemini North America

Europe

Latin America
Exhibit 1.1 Global HNI population grew by 9.1% Y-o-Y in 2019
Middle East

Africa

12 mn 16.5 mn 19.6 mn
in 2012 in 2016 in 2019

Source: Capgemini Financial Services Analysis 2020, World Wealth Report 2020 from Capgemini

Key highlights

• Global HNI wealth stood at USD 74 tn in 2019, growing
at a robust pace of 8.6% Y-o-Y (Exhibit 1). This growth
was due to a surge in equity markets, mainly led by
strong performance of technology stocks
• Asia Pacific, accounting for the highest share of HNIs
with an aggregate wealth of USD 22.2 tn, also grew in
line with global trends
• Number of HNIs in Asia Pacific grew at a CAGR
of 8.4% from 3.7 million to 6.5 mn during 2012-
19 (Exhibit 1.1). China has been the main driver
of this growth
• Developed markets led global wealth growth in
2019, with North America leading at 11% and
surpassing the traditional leader, Asia Pacific

Source: #Capgemini Financial Services Analysis 2020, World Wealth Report 2020 from Capgemini

Private Wealth Group: (re)Imagine Real Estate Investments 4

 Family offices actively scouting
for investment opportunities
‘Family offices’ have picked up a lot of momentum in recent
years. They are advisory firms who manage the wealth of UHNI
investors. A family office could be servicing as a single family
office or a multi-family advisory. These offices are professional
teams who consider numerous investment buckets and advise
their clients on various investment criteria. The family office
works as personal wealth managers for Ultra-HNI (UHNI) families
with an average of USD 100 mn in investible assets. Family offices
managed an estimated USD 5.9 trillion worth of assets across
the globe in 2019*. Asia Pacific accounts for 18% of family offices,
with Singapore and Hong Kong being the key family office hubs.

India is estimated to have more than 200# family offices that

mostly comprise traditional business families. These families
have generated wealth over the years and hired the services of
family offices to manage their wealth. Many leading industrialists
have set up single family offices. Additionally, many first
generation entrepreneurs, who have created wealth from
industries based on technology, e-commerce, renewable energy
or the shared economy, have also used family office services to
manage their wealth.

*Campden Research 2019

https://yourstory.com/2017/11/family-offices-entrust-nandan-nilekani-hnis
#

Private Wealth Group: (re)Imagine Real Estate Investments 5

India’s wealthy population: Potentially
more than estimates
India’s journey of liberalisation in the 1990s led to the growth of a new generation
of entrepreneurs alongside established business houses, leading to high growth Indian HNI
in personal wealth creation. A series of economic reforms during that era, coupled population grew
with capital market regulations, led to the growth of India’s economy, as well as to
the creation of wealth. India’s GDP grew at an average of 6.7% per annum over 15 12%
by CAGR
years (FY 2005-06 to FY 2019-20), which led to the growth of technology led sectors, during four years
consumer industries and financial markets. Rising incomes led to demand for
products (both lifestyle and non-lifestyle) from consumers, which eventually created wealthy entrepreneurs.
Foreign investments in India grew ten-fold during the last 15 years, from USD 6 bn in FY 2005 to USD 73 bn in
FY 2020. This opened up huge opportunities for many family owned businesses who capitalised their existing
ventures at high valuations and invested the surplus in new businesses or create wealth portfolios.

As the Indian economy moved to a ‘service economy’ by riding on its IT/ITeS success, it spawned a new
generation of tech-driven entrepreneurs. Infosys inspired the growth of many new technology driven ventures
with Bengaluru becoming the new growth hub. Advancement in life sciences also led to the growth of bio-tech
companies. In addition, the e-commerce revolution, led by the growth in India’s telecom sector, created a new
set of wealth creators.

Private Wealth Group: (re)Imagine Real Estate Investments 6

HNI wealth increases at a CAGR of 15% despite domestic growth challenges

The definition of the wealthy individual needs to be redefined in the Indian context as traditional businesses
continue to be driven by the family and wealth is collectively owned; although this trend has been changing over
the years. A survey of Ultra-HNI Household (HNH) (minimum net worth of INR 250 mn mapped over 10 years) offers
more insights, as shown in Exhibit 2 and 3.
(Note: Ultra- HNH category based on the net worth of INR 250 million would fall in HNI category defined globally & will be referred to as HNI henceforth)

Indian HNI population grew by HNI wealth grew more than

Exhibit 2 Exhibit 3
12% CAGR during four years 15% CAGR in four years

Number of HNIs INR trillion

160,600 2016-17 153

146,600 2015-16 135

137,100 2014-15 128

117,000 2013-14 104

100,900 2012-13 86

Number of HNIs Combined net worth

Source: Kotak Wealth Management, Top of the Pyramid report, 2017

• Net worth of HNIs increased at CAGR of 15% from INR 86

trillion in FY 2013 to INR 153 trillion in FY 2017 Indian HNI overcame
• Growth in net worth was achieved despite various challenges domestic challenges - wealth
faced at macro-economic levels and global headwinds to rose at a CAGR of 15%
economic growth
• Indian HNI population increased at CAGR of 12% from 1,00,900 in FY 2012-13 to 1,60,600 in FY 2016-17. Growth
of Indian HNI wealth was much higher than India’s GDP growth, which grew at an average of 7.1% y-o-y during
the FY2012-13 to FY2016-17 period
• Above period was also characterised by growth of technology driven businesses leading to growth of first
generation entrepreneurs
• India’s HNI population is expected to double from 160,600 in FY 2016-17 to 330,400 in FY 2021-22. However, the
growth projection is expected to be affected by the economic impact of the pandemic

Private Wealth Group: (re)Imagine Real Estate Investments 7

Though these numbers are based on estimates, the actual size is expected to be much higher. Joint family
businesses, trading communities, farmers with large land holdings, traditional financers and businesses operating
in the informal sector are not captured in the formal channels. Other indicators to gauge the extent of wealth in
India can be found from the income tax returns filed, number of registered companies, the valuation of start-ups in
India, and the consumption of luxury products, which have been highlighted in Exhibit 4.

Exhibit 4 Wealth indicators point towards higher HNI Indian population

40,000 52
luxury Potential
cars sold unicorns
30,000 annually as of 2019 700 Visible wealth signs
taxpayers with tonnes of gold
income > INR demand in
point to higher
5 crore 2019 number of Indian
HNI population
356 India wealth 1.1 mn
private jets operational
as of FY2018 indicators companies

Note: 1. Unicorn is a privately held start-up company valued at over USD 1 bn.
2. Data for operational companies is as of February 2020, Ministry of Corporate Affairs, Government of India.
3. Income tax data is for Assessment Year (AY) 2018-19.
4. Luxury car is defined as per SIAM data.
Source: CBDT, SIAM, World Gold Council, Ministry of Corporate Affairs, DGCA

One of the ways to ascertain the rise in wealth of Indians is by assessing the growth of the number of taxpayers over
the years (Exhibit 5). Income tax payers with income above INR 5 crore doubled from 15,000 in Assessment Year
(AY) 2013-14 to 30,000 in AY 2018-19. This represents individuals under other categories like the Hindu Undivided
Family, Firm, Companies as well as individuals. Tax payers earning more than INR 5 crore grew at a CAGR of 15%
during the above period, indicating the growth in wealth of HNIs.

Exhibit 5 Tax payers earning annually INR 5-crore double in 5 years

The assessment of India’s HNI population has been

30,000
AY 2018-19 challenging since a large section also exists in the informal
economic segment and is unlikely to be assessed fully.
For instance, HNIs in the farming belt of Chandigarh and
Number of taxpayers

sugar producing belt of Maharashtra are not likely to be

covered. Similarly, many entrepreneurs in the unorganised
sector are unlikely to be covered in the estimation of India’s
HNI population. However, our analysis of various wealth
indicators bring us to the conclusion that the number of
HNIs in India has been growing at a high pace ever since the
15,000 country embraced economic reforms and made great strides
AY 2013-14
in information technology and other emerging industries.
Source: Central Board of Direct Taxes

Private Wealth Group: (re)Imagine Real Estate Investments 8

Real estate - The most preferred
investment option after equities
Portfolio diversification is universally followed as an investment dictum and wealthy investors are no exception.
These allocations tend to maximise returns, while trying to manage the associated risks. Asset classes like equities
and real estate have been through a cycle of volatility following the global financial crisis and have emerged as
key assets in the global HNI portfolio.

Exhibit 6 Real estate accounts for 23% share of Global HNI investments in 2019

4% 28%
Others Equities

~¼ th of the
10%
Private
equity
wealth invested by
16% HNIs is in real estate
Bonds and the number
continues to increase
19% 23%
Cash Real estate
Source: Industry reports, JLL estimates

• Equities account for the highest share of investments at 28% due to

their long-term return potential, reflecting the risk taking abilities of HNI
investors. Equity investments are preferred by investors as they are more
liquid compared to other asset classes
• Real estate investment, due to its tangible nature and associated wealth
indication, continues to be a traditionally favoured asset class with 23%
share. The nature of investments within the asset class has witnessed
diversification with more allocation towards commercial assets and
investments in publicly traded Real Estate Investment Trusts (REITs)
• Stable income with a principal protection objective has been achieved
through investments in bonds, which accounts for 16% share. The
allocation towards this asset class acts as a hedge as its returns improve
when equity markets decline
• Global uncertainty, slower economic growth and trade tensions have led
to investors preferring to stay put in cash and cash equivalent, forming
19% share
• HNIs with a high risk appetite have been investing in private equity as it
offers superior risk adjusted returns as well as access to new technology-
driven ventures

Private Wealth Group: (re)Imagine Real Estate Investments 9

Indian HNIs more aggressive on equity and real estate investments

Indian HNI follow similar investment trends in real estate as their global counterparts. However, the
allocation towards equity has been higher than the global trend. An analysis of the investment trend during
FY 2013 to H1FY 2018 indicates the following trends.

Exhibit 7 Real estate and equity together account for 70% share of total investments

4% 9% 9% 11% 11% 14%

32% 24% 20% 22% 17% 16%

70% of Indian
HNI portfolio is
29%
26%
28%
32% 26% in real estate and
29%
equity assets

35% 38% 45% 39% 40% 44%

FY 13 FY 14 FY 15 FY 16 FY 17 H1 FY 18
Equity Real estate Debt Alternate investments
Note: Alternate investments include alternative investment funds
and private equity
Source: Kotak Wealth Management, Top of the Pyramid report, 2017

• Equity investments enjoyed the highest allocation,

witnessing highest share due to the appreciation in
Indian equity markets during the period

• Real estate investments enjoyed the highest

allocation by HNIs due to their tangible nature,
stable returns and security. Investments in real
estate have moved from traditional residential
segment to commercial office space, high street
retail and warehousing

• The lowering of risk perception due to economic

growth during the above period led to HNIs
reducing their allocation to debt funds as returns
declined in line with reduction in policy rates

• Alternative investments saw sharp increase in share

as investors tried to increase returns by investing in
new ventures and alternative investment funds

Private Wealth Group: (re)Imagine Real Estate Investments 10

Annuity income from real estate picks up momentum for Indian HNIs

Investments in various segments of real estate are reflective of the return potential from each segment. Residential
real estate, which once occupied the highest share, has given way to commercial office space and warehousing
on the back of robust growth over the years. Some of the trends in real estate investments are as follows:

Exhibit 8 Office space enjoys highest share of Indian HNI real estate investments in 2019

1% Others 67%
Office Office space grabs
2% Hotel
3% Residential
2/3rd share of
Indian HNI real estate
investments
12% Retail

15% Warehousing

Source: JLL India Private Wealth Group Survey

• Investments in office space became the first choice

for property investors. India’s Grade-A office stock of
more than 600 mn sq ft, spread across its top 7 cities,
was preferred by institutional investors as well as HNIs
due to stable annuity returns and possible upside due
to capital appreciation

• India’s retail segment, particularly high street retail,

is another preferred option as it offers higher annual
returns, high demand and better capital appreciation.
The segment offers options to invest in traditional as
well as emerging locations across India’s leading cities

• Residential segment, which delivered high returns

during the pre-GFC phase, went out of favour as it
went through a series of real estate reform measures
initiated to increase transparency

• Warehousing evinced strong interest owing to

automation & tax reforms like the Goods and Services
Tax or (GST). Growth of e-commerce due to increased
online shopping also led to increased demand for
modern warehousing facilities

Private Wealth Group: (re)Imagine Real Estate Investments 11

Indian real estate: Office space segment
dominates growth and investments

The dynamics of the Indian real estate sector changed dramatically after the global financial crisis. The overall focus
of the government on introduction of various regulatory reforms affected the various asset classes differently.
Residential real estate underwent a structural transformation, which tried to address the issues of accountability
and transparency, leading to disruption in the segment. On the other hand, commercial office recovered rapidly
and became more institutionalised. This segment has reached a high level of maturity, attracting substantial cross
border investments. Meanwhile, the warehousing segment went through a transformation with the introduction
of GST- the ‘one nation, one tax’ concept, leading to a surge in demand. The retail segment also showed signs of
revival after it went through challenges from online shopping and changing customer preferences. The change
in prospects of various segments is reflected in the investment trends of institutional investors, which has been
analysed in the next section.

Institutional investments remain resilient despite challenges

Institutional investments in Indian real estate crossed the USD 5-bn mark for the last three years, but 2020 started on
a weak note. Investments declined by 58% during January-March 2020 Y-o-Y, due to the impact of COVID-19, which
was more pronounced during the last month of the quarter. Since most HNIs prefer to invest through alternative
investment options like private equity and family offices, their investments are likely to mirror similar trends.

Exhibit 9 Steady investment flows above USD 5 bn annually since last 3 years

USD bn

USD 5 bn+
5.5 5.6 India’s annual
5.3
2017 2018
2019 real estate
Source: JLL Research
investment -
• Institutional investments weathered various structural
Three years in
changes and maintained momentum during 2017-2019 a row
• More than 50% of investments during the period
were absorbed by office space, followed by retail and
warehousing segments

• Mumbai accounted for 44% of the total investments in last

three years, driven by its office space and housing segment

• Investments in 2019 were partly affected by shadow bank

crisis leading to uncertainty among investment community

Private Wealth Group: (re)Imagine Real Estate Investments 12

The COVID-19 pandemic, with varied and unexpected side effects on economic growth, has left everybody
scurrying for safety. Real estate investments in India during January-March 2020 declined sharply to an estimated
USD 712 mn over USD 1,704 mn during the same period last year, a Y-o-Y decline of 58%. The restriction on people’s
movement and lack of clarity about the impact of the pandemic on the economy have led to a slowdown in the
investment cycle. Sovereign wealth funds, affected by the sharp fall in crude prices and general economic stress,
are likely to reduce their investments.
The current global environment is likely to lead to a decline in the inflow of foreign institutional investments into
India. Moreover, a slump in oil prices to multi-year lows may affect sovereign wealth funds, which are likely to
reduce investments into India. On the hand, NBFCs that have been grappling with liquidity issues have got some
relief from the Reserve Bank of India (RBI).

Office demand to remain robust in the medium to long-term

India’s office space landscape has changed significantly over the past few years. Grade A office stock has expanded
rapidly from nearly 310 mn sq ft in 2011 to ~600 mn sq ft in 2019, and is expected to surpass 700 mn sq ft by 2022.
Office markets across the country have witnessed considerable demand for four years with the average annual
net absorption crossing 30 mn sq ft levels. Although the major share of occupier demand is still from the IT/ITeS
industry, global in-house centres and co-working occupiers have pushed the demand to the next level.
Year 2019 set new benchmarks for the office market (Exhibit 10). The office market witnessed a robust 40% Y-o-Y
growth with net absorption across the top seven cities reaching a historic high of more than 46 mn sq ft. This
strong growth in demand was led mainly by strong expansion of IT/ITeS (42% of overall leasing) and co-working
operators (14% of overall leasing) in cities with strong fundamentals and planned infrastructure improvements
(Exhibit 10).

Exhibit 10 Office segment sets new absorption record in 2019

2017 Y-o-Y 2018 Y-o-Y 2019 Y-o-Y

2016 2017 2018 2019 Record
46.5
change change change

Net
Absorption 33.5 28.7 33.2 46.5 -14.10% 15.60% 40.00%
(mn sq ft) mn sq ft Office
New space absorption
Completions
(mn sq ft)
34.7 26.9 35.2 50.9 -22.40% 30.60% 44.70% in 2019
Vacancy 15.10% 14.00% 13.50% 13.00%

Exhibit 11 Leasing activity driven by IT / ITeS and co-working

2018 8% 12% 12% 42% 5% 8% 6% 7%

2019 9% 10% 9% 42% 2% 14% 5% 9%

Telecom, Healthcare, Miscellaneous Manufacturing / IT & ITeS E-Commerce Co-working Consulting BFSI
Biotech, Real Estate, industrial Business
Construction & Other
industries
Source: Real Estate Intelligence Service (REIS), JLL Research

Private Wealth Group: (re)Imagine Real Estate Investments 13

Temporary pause in office space absorption due to the lockdown

The last month of Q1 (January to March) 2020 saw most businesses defer their real estate decisions due to the
impending crisis. With a nationwide lockdown in place, there was enhanced emphasis on business continuity
plans and management of costs to mitigate the adverse effects of the pandemic. Net absorption of office spaces in
Q1 2020 witnessed a decline of 30% from the peak observed in Q1 2019. Furthermore, construction activity and the
process of obtaining requisite approvals from the government also slowed down in the beginning of March, in line
with growing concerns of the impact of COVID-19, before it came to a standstill. Net absorption were recorded at
8.6 mn sq ft in the first quarter of 2020, a 40% drop over the same period last year.

Exhibit 12 Office segment growth momentum impacted by COVID-19

Net Absorption (mn sq ft)

10.6 4.3 6.8 12.3 8.6 -30%

Q1 2016 Q1 2017 Q1 2018 Q1 2019 Q1 2020 Q1 2020
Growth y-o-y

Note: Top 7 cities include Delhi NCR, Mumbai, Bengaluru, Chennai, Hyderabad, Pune and Kolkata
Source: Real Estate Intelligence Service (REIS), JLL Research

The impact of lockdown on office leasing is unfolding slowly and is currently too inadequate to draw finite trends.
Most businesses are deferring their real estate decisions with an enhanced emphasis on managing costs and
business continuity plans. The key trends that have emerged in the office space during the pandemic are as follows:

• Most landlords are providing/reviewing relief to occupiers with CAM

discounts or waivers Office space to
• Developers in cities such as Delhi NCR, Mumbai, Chennai and Kolkata are recover fastest post
more open to discuss extra rent free period in case of new deals
pandemic due to robust
• Office market fundamentals remain landlord favourable with limited
upcoming supply; discussions on rental discounts and deferment of rent fundamentals
not being entertained by most landlords

In the short-term, renegotiation of contracts between landlords and occupiers is the underlying trend in the office
real estate market.

In the medium to long run, the current health crises will lead to corporates re-evaluating their commercial real
estate strategy to make it more resilient to such shocks. Business continuity plans and remote working strategies
have been successful. Hence, future demand from occupiers is likely to take into account the need for flexible
workspace. This could encourage occupiers to reduce capital costs, place greater emphasis on employee well-
being and sustainability, and fast track the adoption of flex working practises.

Office market fundamentals are expected to remain robust as cities like Bengaluru, Pune, Hyderabad and Chennai
have single digit vacancies, while prime office locations in cities like Mumbai and Delhi NCR command premium
rentals due to very low vacancy rates and limited upcoming supply. Office markets are expected to recover the
fastest once the pandemic comes under control.

Private Wealth Group: (re)Imagine Real Estate Investments 14

Embassy REIT: Laying the foundation for India’s REITs market
India witnessed the launch and successful listing of its first REIT by a joint
venture (JV) of Blackstone and Embassy in April 2019. The performance Strong investor response
of the first REIT has put to rest all the apprehensions and is likely to lead to Mindspace REIT:
to the listing of more REITs in India. The success of the first REIT has over-subscribed by 13
bolstered the confidence of other developers and investors, primarily with
a commercial office portfolio, to list their assets under a REIT platform.
times in July 2020
Mindspace Business Parks REIT, backed by K Raheja Developer and Blackstone group, the second listed REIT in
India witnessed strong investor interest as its initial public offering was over-subscribed by 13 times in July 2020.
The institutional investor portion was oversubscribed by 10.65 times, while rest of the portion was over-subscribed
15.83 times. The issue witnessed participation from various foreign and domestic institutional investors like GIC,
Fidelity, Capital Group and Fullerton. The REIT has a portfolio of 29.5 mn sq ft of commercial properties located
across major cities, such as Mumbai, Pune, Chennai and Hyderabad, out of which around 24.5 mn sq ft area has
been constructed.

Exhibit 13 Embassy office park REITs indicates India’s office space returns potential
480

370

313
Apr - 19 Jun- 19 Aug - 19 Oct - 19 Dec - 19 Feb - 20 Apr - 20 Jun - 20 Aug - 20
Unit price Source: National Stock Exchange

Embassy Office Parks REIT comprises 26.2 mn sq ft. of completed and operational commercial properties across
India. With approximately 7.1 mn sq ft of on-campus development in the pipeline, the total portfolio spans 33.3
mn sq ft across seven Grade A office parks and four city-centre office buildings in India. The REIT has appreciated
by 23% over the allotment price of INR 300 per unit issued in April 2019 (Exhibit 13). Rental collections have been
marginally impacted by COVID-19 as rent collections from office occupiers stood at 92% of the total collections for
the month of April 2020.

India’s commercial office segment has been the favourite asset class of institutional investors over the years. This is
evident from the fact that nearly USD 20 bn has been invested in the form of direct investments during 2005-2019.
A detailed analysis of the office market based on asset ownership, property size, leased space and asset quality has
been used to arrive at REIT-worthy office spaces.

The likely REIT-worthy office assets in India have been estimated on the basis of two important factors-single
ownership and larger floor space with high occupancy rates. JLL Research estimates that 270-mn sq ft of office
stock would be eligible for REIT. This would translate to a potential investment of ~ USD 33 bn.

Private Wealth Group: (re)Imagine Real Estate Investments 15

Exhibit 14 India’s office space potentially holds ~ USD 33 bn REIT-worthy assets

2% Bengaluru
9% 1%
11%
Delhi-NCR
30% 9% 28%
12% Citywise Chennai Citywise
REIT-worthy REIT-worthy stock
stock share Mumbai value share
Hyderabad 20%
13% 270 mn sq ft USD 32.8 bn
Pune
19% 20%
13% Kolkatta 13%
Source: Real Estate Intelligence Service (REIS), JLL Research

Key highlights of India’s REIT-worthy office space assets

• Bengaluru has more than 80 mn sq ft REIT-worthy assets followed by Delhi-NCR at nearly 50 mn sq ft

• Cities like Mumbai, Hyderabad, Chennai and Pune have around 30 to 35 mn sq ft REIT-worthy asset stock
• Most of the REIT-worthy stock across cities include IT assets. Mumbai city is an an exception with non-IT stock
share above 25%
• In terms of value, Bengaluru leads with USD 9.4 bn followed by Delhi and Mumbai with USD 6.5 bn each

Warehousing opportunity emerges as a new investment favourite

India’s logistics and warehousing segment underwent a revolutionary phase due to multiple initiatives associated
with the segment, clearly underscoring the upcoming trend. Warehousing segment inventory stood at 211 mn sq
ft at the beginning of 2020, with Grade-A stock at 88 mn sq ft. India’s warehousing segment has shown substantial
growth with absorption moving up to nearly 36 mn sq ft in 2019 from 32 mn sq ft in 2018. The segment witnessed
a 13% y-o-y growth in total net absorption in Grade A and B warehousing spaces across the leading cities of Delhi
NCR, Mumbai, Bengaluru, Kolkata, Pune, Hyderabad, Chennai and Ahmedabad. Delhi NCR, followed by Mumbai
and Bengaluru, remained the top three cities in terms of warehousing space absorption in 2019. Together they
accounted for more than 20 mn sq ft of absorption. Other cities such as Kolkata, Chennai and Pune also continued
their strong show.

Private Wealth Group: (re)Imagine Real Estate Investments 16

 Exhibit 15 13% growth in net absorption of warehousing space in 2019

Net Absorption1 2019

2016 2017 2018

20
41 mn sq ft
6 9 18 ~36
Gross Absorption2
~13 ~20 ~32
2019
2
Gross Absorption is all transactions
that happened in the market including
8 9 14 16 renewals & churning

Grade A Grade B
1
Net Absorption is the net warehouse space occupied Source: JLL Research

The global pandemic led to lockdown in India during the last week of the first quarter of the year (Q1 2020). This
resulted in some impact on the supply addition of new warehouse spaces in the market. There was a contraction
of approximately 15% in new supply in the first quarter of the year (Q1 2020) over the same quarter last year (Q1
2019). However, on a closer look, the quarterly new supply addition is higher than the average quarterly new
supply addition of the first quarter over the last three years (2017-2019), which demonstrates that the impact of the
lockdown is yet to set in. Going forward, in the next three quarters, the supply is expected to witness:

• Delay of project delivery due to labour shortage over the next 1-2 quarters post lockdown

• Projected supply of speculative spaces may be delayed by a quarter or two

Exhibit 16 15% decline in new supply addition in Q1 2020 due to pandemic impact

Y-o-Y New Warehouse Supply Addition The impact of the lockdown is still evolving, but
(Speculation & Build-To-Suit) vs Net Absorption# in Q1 the impact on the overall annual supply of new
warehouse spaces, though eminent, needs further
12 12%
Warehousing space (mn. sqft.)

10.5 10.2% assessment as it evolves.

10 11.7% 9.1% 9.1% 10%
9.0
8.3
7.3 The COVID-19 pandemic will force operators to
Vacancy (%)

8 8%
5.3 4.9 5.4 5.9 concentrate on supply chain risk mitigation and
6 6%
4 4% resilience. It will accelerate trends that were evident
2 2% across the segment prior to the pandemic, such
0 0% as increased online penetration rates, expansion
Q1 2017 Q1 2018 Q1 2019 Q1 2020 of online grocery, omni-channel retailing and the
New Addition Absorption Vacancy Source: JLL Research
integration of technology with warehousing.
#
Net absorption is the net warehouse space occupied

The warehousing segment attracted USD 1.2 bn institutional investments

during 2017-2020 and platform fund commitments of USD 5.2 bn during
the same period, indicating the improved attractiveness of the segment.
USD 6.4 bn
Investments in India’s warehousing space offer the advantages of stable, long-
commitment
term lease rental incomes and steady appreciation in capital values. Though announced / invested
the segment has been equally affected by the ongoing pandemic, demand for by institutional
online shopping is expected to lead to higher demand for warehouses as the investor for
country returns to normalcy. Investments in warehousing space is an emerging warehousing segment
area for HNIs and will require advisory support from property consultants.

Private Wealth Group: (re)Imagine Real Estate Investments 17

Office space offers attractive
returns for HNIs
The uniqueness of any real estate asset class lies in the inherent multiple risk factors present at each stage of
development. Commercial office segment is no exception. The various risk factors listed in Exhibit 17 are obviously
highest at the inception stage and hence carry maximum return expectations.

The given framework and the return expectations are greatly influenced by the risk free rate with the G-sec yield
being the benchmark. On the other hand, the stage of office asset development lifecycle in terms of supply/
absorption and its impact on rental and capital value appreciation have equal bearing on the return expectations.
Investment decisions in office projects become more complex when one has to assess such assets in various
business districts across major cities. The choice of investment structures (firm, LLP, investment fund) and funding
options (lease rental discounting, outright purchase) require expert guidance from property consultants with
deeper understanding of the markets.

8-12%
Pre-tax yield offered
Exhibit 17 Risk–return matrix favours office space investments by office space
assets in India

10-12%

9-10%
Returns

8.5-9%
8-8.5%

Vacant but ready

Stage Fully Leased Construction stage Approval stage
for lease
Rent Rent Rent Rent
Risk factors

Tenant Tenant Tenant

Developer Developer Developer

Construction

Note: Returns mentioned are pre-tax yield Source: JLL Private Wealth Group

Private Wealth Group: (re)Imagine Real Estate Investments 18

Office space investments offer stable annual cash flows and
capital appreciation

Exhibit 18 Office space investment yield and IRR returns

(INR)
Particulars 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 CAGR
Net rent per sq ft per
100 108 117 122 129 139 146 153 161 169
month
Annual rent 1,200 1,296 1,400 1,470 1,543 1,667 1,750 1,837 1,929 2,026 6%
Annual escalation 8% 8% 5% 5% 8% 5% 5% 5% 5%

Capitalisation rate 11.00% 11.00% 11.00% 11.30% 10.75% 10.30% 10.30% 8.30% 8.00% 8.00% CAGR
Implied capital value 10,909 11,782 12,724 13,006 14,355 16,181 16,990 22,138 24,116 25,322 10%
Capital appreciation 8.0% 8.0% 2.2% 10.4% 12.7% 5.0% 30.3% 8.9% 5.0%

IRR model (INR)

Particulars 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Investment at start
-10,909 25,322*
of yr (outflow)
Net rent recd (inflow) 1,200 1,296 1,400 1,470 1,543 1,667 1,750 1,837 1,929 2,026
Cash flow -9,709 1,296 1,400 1,470 1,543 1,667 1,750 1,837 1,929 27,348
XIRR 22.7%
Note:
1. Net rent is arrived after deducting common area maintenance, taxes and other charges 6. IRR- internal rate of return-It is an estimate
2. Office space invested is fully leased Grade-A property with strata sale option of annual rate of return
3. Cap rate used based on the deals closed over the years for office space transactions 7. *The Office asset has been assumed to be
4. Returns are based on 100% equity investments. Lease rental discounting could lead to higher returns on equity sold in 2019 at the implied capital value
5. Returns are calculated as pre-tax returns Source: JLL Research

• Rental returns from office space are governed by the supply

and absorption dynamics. Currently, low vacancy levels in
key micro-markets of top seven cities offer steady rental
23% Indicative pre-tax
escalations IRR grossed by Indian
• Current pandemic might affect rentals, but low vacancy, office space investments
deferred supply and return to normalcy in next few quarters during 2009-19
could lead to resumption of growth cycle in office space

• Rise in office space investments combined with limited

vacancy, specifically for Grade-A space has resulted in
appreciation of capital values. Investors are likely to expect
higher returns in the post COVID era due to the expectation
of opportunistic transactions that could come their way

• Continued investment by institutional investors and the

success of two REITs led to increased demand for office
assets, resulting in higher capital appreciation

• Investments in office space since 2010 indicate pre-tax IRR

of 22.7% during the period. The return on equity would be
much higher, if the lease rental discounting option is used

Private Wealth Group: (re)Imagine Real Estate Investments 19

Strata office market worth ~INR 2.26 lakh crore (USD 30 bn)
provides huge investment options for HNIs
India’s existing office space market currently provides investment opportunities across three stages-fully leased with
various value buckets (strata office spaces), ready-to-occupy, and under-construction assets. Each of the top seven
cities of India offer varying investment options. These have been arrived at after excluding developer and institutional
investor assets that do not provide the above options. These investment opportunities are shared in Exhibit 19 :

Exhibit 19 India’s strata office market provides ~180 mn sq ft investment opportunity as of Q1 2020

NCR-Delhi Pune
mn sq ft INR Crore mn sq ft INR Crore
Leased space 3.6 4,528 Leased space 16.9 18,495
Vacant space 6.9 8,803 Vacant space 0.6 653
Under construction* 12.3 12,119 Under construction* 0.2 280
Total 22.8 25,450 Total 17.7 19,428

Mumbai Kolkata
mn sq ft INR Crore mn sq ft INR Crore
Leased space 49.2 88,738 Leased space 3.7 3,294
Vacant space 12.5 19,036 Vacant space 15.4 12,414
Under construction* 1.2 2,797 Under construction* 1.0 1,212
Total 62.8 110,570 Total 20.1 16,920

Hyderabad
mn sq ft INR Crore
Leased space 15.0 12,389
Vacant space 0.8 596
Under construction* 4.2 3,086
Total 20.1 16,070

Bengaluru Chennai
mn sq ft INR Crore mn sq ft INR Crore
Leased space 14.4 15,963 Leased space 9.2 10,175
Vacant space 2.3 2,036 Vacant space 8.4 8,596
Under construction* 1.5 1,346 Under construction* - -
Total 18.2 19,345 Total 17.7 18,771
*(2020)
Source: Real Estate Intelligence Service (REIS), JLL Research

Private Wealth Group: (re)Imagine Real Estate Investments 20

Key trends for strata investments
• MMR has the highest leased space with 49 mn sq ft of stock valued at INR 887 bn. Legacy office spaces, demand
from medium sized firms and presence of HNIs have led to more availability of Grade-A strata space

• Some sub-markets of MMR provides ready to lease space of 12 mn sq ft, which could offer higher returns than leased
space. Since the upcoming supply is expected to be deferred in 2020, only 1.2 mn sq ft that are under construction
would be available for strata investments

• Pune offers 17 mn sq ft leased space office investment opportunity. Since the city has very low vacancy, investment
opportunity in vacant and under-construction office space is very less

• Hyderabad offers 15 mn sq ft leased office space investment opportunity. Since the city saw high absorption trends
in the past, barring the current scenario, its under-construction supply of 4.2 mn sq ft in 2020 is expected to provide
an opportunity for higher returns

• Bengaluru offers comparatively lower strata opportunities due to prevalence of landlord-held office assets, captive
SEZs and IT parks. Leased office space of 14.4 mn sq ft provides investment opportunity. The city offers very less
ready to lease and strata sale under construction options

• Chennai has 9.3 mn sq ft of leased strata space and 8.4 mn sq ft of ready to lease space for strata investments

• Delhi NCR offers very less leased strata space of 3.6 mn sq ft due to its large office complexes held by marquee
developers. On the other hand, higher supply in peripheral zones offers 6.9 mn sq ft of ready to lease space. It offers
the highest under-construction investment opportunity with 12 mn sq ft valued at INR 121 bn

• Kolkata has 15.4 mn sq ft of ready to lease office space for investments. Select assets are expected to provide
investment opportunity for long-term investors as the city represents the office hub of eastern India

180 mn sq ft
Strata office space
market in India

Private Wealth Group: (re)Imagine Real Estate Investments 21

 Conclusion
HNIs and family offices have been gaining importance due to their rising numbers over the years. The global HNI
population increased from 12 mn in 2012 to 19.6 mn in 2019, while their combined wealth grew from USD 46 tn to
USD 74 tn during the same period. This wealth is held across various asset classes, of which equity and real estate
account for the largest shares of the pie with 28% and 23%, respectively.
In India, defining and sizing its wealthy individual population has been challenging due to various factors.
Collective holding of wealth, a large informal economy and tax exempt sectors led to lower estimates of wealthy
population than the actual scenario. However, one finite trend emerging from various parameters points to near
doubling of the wealthy population in the last few years.
Real estate continues to be the traditionally favoured asset class of HNIs, with 23% share of their total investment
pie. Investments in real estate have evolved over the decades with various emerging forms. Office space
investments have emerged as the most preferred segment for Indian HNIs, accounting for 67% of their total
investments in real estate.
India’s office segment has witnessed robust growth over the last four years with the average annual net absorption
crossing 30 mn sq ft levels, leading to steady rental and capital appreciation. The listing of India’s first REIT heralds
the institutionalisation and increased maturity of office space segment. Overall, office market fundamentals
are expected to remain robust due to very low vacancy rates and limited upcoming supply. The segment is also
expected to recover the fastest once the pandemic comes under control.
The analysis of investments in India’s office space indicates attractive pre-tax IRR of ~23%. HNIs can invest in strata
office space, which is estimated to be ~180 mn sq ft and worth ~INR 2.26 lakh crore (USD 30 bn) as of January 2020.
Investment opportunities are currently overshadowed by the unprecedented challenges created by the
ongoing COVID-19 pandemic. Many HNIs who had invested abroad or created overseas trusts want to bring their
investments back to India. Family offices are expected to take stock of their investments once the pandemic
is contained and the lockdown is lifted. Although the current situation has put all investments in pause
mode, those with a long-term outlook can use this period for bargain deals at attractive valuations.
As the world braces for a new normal after the pandemic is brought under control, HNIs
can make opportunistic investments. Real estate, which plays the dual role of a contributor
as well as a beneficiary of this growth, will prove to be the most important asset class
in the HNI portfolio.

Private Wealth Group: (re)Imagine Real Estate Investments 22

About JLL
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment
management. JLL shapes the future of real estate for a better world by using the most advanced
technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for
our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $18.0
billion, operations in over 80 countries and a global workforce of more than 93,000 as of December 31,
2019. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further
information, visit jll.com

About JLL India

JLL is India’s premier and largest professional services firm specialising in real estate. With an unaudited
revenue in excess of 4,900 crores for FY 2019-20, the Firm is growing from strength to strength in India for
the past two decades. JLL India has an extensive presence across 10 major cities (Mumbai, Delhi NCR,
Bengaluru, Pune, Chennai, Hyderabad, Kolkata, Ahmedabad, Kochi and Coimbatore) and over 130 tier II
& III markets with a cumulative strength of close to 12,000 professionals.
The Firm provides investors, developers, local corporates and multinational companies with a
comprehensive range of services. This includes leasing, capital markets, research & advisory, transaction
management, project development, facility management and property & asset management. These
services cover various asset classes such as commercial, industrial, warehouse and logistics, data
centres, residential, retail, hospitality, healthcare, senior living, and education. For further information,
please visit jll.co.in

Private Wealth Group

As India’s first IPC to have a dedicated pan India team to support ultra-high net worth individuals and
family offices in their real estate strategies, JLL’s Private Wealth Group helps pursue investment goals
through careful advice and astute investment management while giving access to the largest network
of developers and funds. Offering compelling insights on market dynamics, the Private Wealth Group
follows a structured approach and offers solutions using extensive modelling and analysis. The goal is to
provide investment protection by minimizing risks and maximizing returns. The team delivers end-to-end
transaction management services, from offering unique investment opportunities to being a personal
property consultant. For details, visit jll.co.in/PWG

Private Wealth Group: (re)Imagine Real Estate Investments 23

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