Listed REITs Lose Luster in 2023 Amidst Market Challenges, Eyes on 2024 for Revival

The performance of Real Estate Investment Trusts (REITs) on domestic stock exchanges has left many investors underwhelmed in 2023. Challenges such as a sluggish commercial real estate market, a slowdown in the IT sector, and increased interest rates have constrained returns for these assets.

MUMBAI: Despite a mostly negative trend in listed REIT prices this year, investment advisors foresee potential improvement in 2024. The optimism hinges on the possibility of the government easing occupancy rules in special economic zones (SEZs).

REITs, entities that own and operate income-generating properties, primarily office spaces and commercial real estate, have faced a decline in unit prices. Mindspace Business Parks REIT saw a 5.4% drop, Brookfield India Real Estate Trust experienced a 16.3% decrease, and Embassy Office Parks REIT fell by 5.4%. In contrast, Nexus Select Trust REIT, listed in May, managed to gain 28%.

Shantanu Bhargava, Head of Discretionary Investment Services at Waterfield Advisors, explained, “REIT share prices were hurt by macro issues such as the hybrid work model-driven office space demand, slower IT & ITES hiring, expected global recession, and high-interest rates.”

This decline in REIT prices occurred against the backdrop of a significant rally in the stock market and real estate shares. In 2023, the Nifty Realty index gained 68.62%, while Nifty 50 rose by 14.86%. Most listed real estate companies, operating in the residential sector, have witnessed a rebound in sales and volumes.

Unmesh Kulkarni, Senior Advisor at Julius Baer India, emphasized, “REITs represent investment in commercial properties, which are seeing steady growth along with the growth of the economy, but not necessarily the strong pickup that is being witnessed by residential real estate.”

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