The Canada Pension Plan Investment Board (CPPIB) is betting on India’s office market for the third time in one year, with the North American giant this week announcing an INR 53 billion ($696 million) joint venture with the property development arm of Tata Group, the country’s largest conglomerate.
The announcement marked CPPIB’s second office joint venture in India so far in 2022 after it unveiled an INR 26.5 billion venture with RMZ Corp last month following a similar cooperation in April 2021. The pension fund manager’s commitments come as institutional investors latch onto the returns available from renting business park space to tech and business outsourcing giants in an economy which is expected to grow by nearly 9 percent this year.
“This new relationship with Tata Realty and Infrastructure, one of India’s leading operators, provides an excellent avenue from which to explore opportunities in the fast-growing commercial real estate sector,” said CPPIB’s head of real estate for India Hari Krishna in a press statement on Tuesday. “It is an important step in expanding CPP Investments’ relationships with leaders in the market, to deliver solid long-term adjusted risk-adjusted returns to CPP contributors and beneficiaries.”
CPPIB’s latest expression of confidence in Indian offices comes after tenants leased 1.24 million square feet (10.8 million square metres) of grade A accommodation in the country during the first quarter, according to Knight Frank. That take-up represented a 25 percent increase over the same period a year earlier, despite the country battling the Omicron wave.
Anchored by Banks and Tech
CPPIB is taking a 49 percent stake in its latest India office venture, while Tata Realty and Infrastructure, which is wholly owned by Tata Group’s primary holding company, will retain 51 percent and act as asset manager.
The venture is seeded by a business park asset in the southeast India tech hub of Chennai and a three block complex in the national capital region, both developed by Tata. The seed portfolio has a combined asset value of INR 80 billion and spans 6.2 million square feet in total gross leasable area.
The biggest asset in the initial acquisition is the Intellion Park Chennai in Tamil Nadu state capital’s Ramanujan Intellion Park.
Located in an information technology special economic zone, the property comprises six grade A office towers measuring 4.6 million square feet in GLA, all of which are rated as LEED Platinum under the US Green Building Council system for sustainable buildings.
Anchor tenants in the complex include e-commerce titan Amazon, UK-based pharmaceutical firm AstraZeneca and American banking giant Citi.
Also part of the initial deal is the three-tower Intellion Edge Gurgaon development in Gurugram, southeast of New Delhi.
First opened in November 2019 with the third and last tower set to be completed this year, the 1.6 million square foot complex is home to New York-based professional services firm Genpact and Bengaluru-headquartered co-working space specialist Simpliwork, among other tenants.
Both properties are nearly 100 percent occupied, with a large portion of tenants coming from the banking and IT sectors.
More Assets on the Way
“With CPP Investments as a strategic long-term partner, the vision of this joint venture is to provide world-class sustainable office space solutions to a diverse set of businesses,” said Tata Realty managing director and chief executive Sanjay Dutt. “This will enable the opening up of new business opportunities for Tata Realty and Infrastructure, allowing us to accelerate our current growth.”
Beyond the investment in the initial properties, CPPIB and Tata Realty are planning to allot up to INR 20 billion to fund future acquisitions of both stabilized assets and development projects in target cities including Mumbai, Delhi, Pune, Bengaluru, Hyderabad and Chennai. In addition to the Chennai and Gurugram properties included in the seed portfolio, Tata Realty’s website lists additional Intellion office park assets in operation in Mumbai and Gurugram with the total portfolio spanning 20 million square feet.
Tata Realty said the new JV is in line with its goal to acquire and develop 10 million square feet of commercial space in the next three years and reach a 45-million square foot portfolio by 2027.
Foreign Funds in India
After taking on its first India office JV with RMZ one year ago, CPPIB is making its latest commitment as Indian office opportunities continue to draw the attention of some of the world’s largest institutional investors.
Just this week US fund manager Hines announced that it is taking on a Bengaluru office project alongside local builder DNR Group, with that 2 million square foot development expected to be completed by late 2026.
In a report issued last month, CBRE India said that after experiencing capital inflows of $5.5 billion in 2021, investment in India’s real estate market can be expected to grow by another 5 to 10 percent this year.