The leasable area of domestic commercial office real estate investment trusts (REITs) will increase by 40-45 million square feet (msf) to 190–195 msf by the end of next fiscal, driven by planned asset additions by the existing REITs and the recent listing of a new REIT.

That, accompanied by growing rental income and diversification, with controlled leverage will keep credit profiles stable.

“Our analysis of five listed commercial office REITs, including the one listed this fiscal, indicates as much,” Crisil Ratings said.

Of the 40–45 msf increase in leasable area, ~16 msf will come from the recent listing of a new REIT. The inorganic addition of operating assets is expected to dominate – as this keeps them away from construction-related risks. In fact, from the first listing seven years ago to fiscal 2026, ~75% of their total asset additions were through acquisitions.

Right of first offer on assets developed or acquired by sponsors on their own platforms will continue to support growth.

Says Gautam Shahi, Senior Director, Crisil Ratings, “Addition in commercial office space is accompanied by healthy demand growth from flexible workspace operators, banking, financial services and insurance institutions, and global capability centres cutting across sectors. This, combined with their good location and high quality, will keep occupancy at a stable 92-93% for REITs this fiscal, higher than the occupancy of the overall commercial office sector.”

Sustenance of strong occupancy, along with contracted rental escalations, will enable REITs to maintain a healthy profit (Ebitda) margin of about 70%, supporting their cash flows.

However, REITs distribute most of these surplus cash flows to their unitholders, and hence asset additions will need to be funded through debt.

Nevertheless, we expect the overall loan-to-value ratio to remain stable at 26-28% through fiscal 2028, akin to the March 2026 level, as the growth in debt is expected to be offset by a commensurate increase in gross asset value based on discounted cash flows.

And, to top, REITs’ business profiles remain supported by their diversified asset portfolio across sectors and geographies – top three sectors and top three locations3 account for approximately 70-75% and 60-65% of the total leasable area, respectively.

That said, any potential disruption caused by artificial intelligence or global slowdown impacting occupancy and/or any further listing of REITs will bear watching.