War jitters revive demand for Reits after IT-driven sell-off

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