Mindspace Tops Morgan Stanley’s REIT Picks as India's Office Market Enters Sweet Spot

India’s office real estate investment trusts are entering what Morgan Stanley calls a new phase of low-risk, compounding returns. This is driven by strong leasing momentum, easing interest rates, and sustained demand from global capability centres (GCCs).

In a new research note, the brokerage said FY25 marked a clear inflection point for listed office REITs, with distribution per unit (DPU) growth of around 10% year-on-year — the first such acceleration since their listing.

Morgan Stanley expects DPU to compound at roughly 10% annually over the next three years, supported by higher occupancies, new leasable area additions, and the full transmission of rate cuts.

India’s office market fundamentals remain resilient, the report said. Leasing volumes have grown at a 33% CAGR over the past two years, while rents have expanded at a 7% CAGR, led by structurally strong GCC demand.

According to NASSCOM, the number of GCCs in India is expected to rise from about 1,760 in FY25 to nearly 2,400 by FY30, with market size expanding at a similar pace. This, Morgan Stanley noted, should keep demand for quality office assets strong.

Lower interest rates add another tailwind. The Reserve Bank of India has cut rates by a cumulative 125 basis points since January 2025, which the brokerage expects to flow through to REIT distributions by FY27.

Against this backdrop, Morgan Stanley upgraded Mindspace Business Parks REIT to overweight and maintained its overweight stance on Embassy Office Parks REIT, while retaining an equal-weight rating on Brookfield India Real Estate Trust.

The brokerage expects FY27 total returns of 20.5% for Mindspace, 19% for Embassy, and a relatively lower 13.8% for Brookfield.

Mindspace emerged as the top pick due to its low leverage, strong sponsor-led acquisition pipeline, data centre exposure, and high mark-to-market rental upside. Embassy, meanwhile, benefits from dominant exposure to Bengaluru and GCC tenants, which contributed nearly two-thirds of its recent gross rentals. Brookfield’s growth, the report cautioned, is more acquisition-led, potentially raising leverage, while offering a less tax-efficient distribution profile.

Despite improving fundamentals, Morgan Stanley flagged constrained institutional participation as a lingering challenge. Regulatory changes — including Securities and Exchange Board of India reclassifying REITs as equities — should help over time, but near-term inflows remain limited.