CapitaLand India Trust CEO bullish on growth opportunities amid global jitters

IT HAS been a busy couple of months for CapitaLand India Trust (Clint).

At a time when most of its Singapore-listed real estate investment trust (S-Reit) peers have seen muted activity due to uncertainty from surging inflation and interest rates, Clint is on the warpath.

“If you read some of the research coming out in the last three months – be it Morgan Stanley, Goldman Sachs or McKinsey – they all seem to be thinking that India will be one of the strongest growth markets in the world,” said Sanjeev Dasgupta, chief executive officer of Clint’s trustee-manager.

And Dasgupta is wasting no time in ensuring that Clint is positioned to capture that growth.

Building clout in cloud

In December 2022 alone, Clint signed two deals to expand its data centre footprint in India.

First, it inked a memorandum of understanding (MoU) with the Telangana government to develop a 250,000 square foot (sq ft), 36 megawatt (MW) data centre at its International Tech Park Hyderabad (ITPH) in Madhapur.

Then, Clint announced the acquisition of a four-acre freehold site in Ambattur, Chennai to develop a data centre with a power capacity of 55 MW.

“India’s four biggest data centre markets are Mumbai, which is almost 65-70 per cent of India’s data centre market, followed by Bangalore, Chennai and Hyderabad. So the important thing for us in our strategy was to create a foothold in all these four markets,” Dasgupta said.

The way Dasgupta sees it, the data centre market in India is “poised for takeoff”.

Some of the reasons for this, he said, are the increased use of data by mobile phone users in India and the strong growth in cloud adoption by Indian companies.

“The government itself is digitalising India at a rapid pace,” he added. “The payment infrastructure that is building up in India today is probably the second largest in the world. And, of course, the other important thing is the government is insisting that consumer data is retained in India.”

Dasgupta foresees that data centres could account for close to 15 per cent of Clint’s portfolio in the next five years.

Business parks are expected to continue to be the mainstay of its portfolio, at about 75 per cent, with logistics and industrial assets making up the remaining 10 per cent.

Value in business parks

Just before the year was up, Clint also announced the proposed acquisition of International Tech Park Pune, Hinjawadi (ITPP-H) to add to its business parks portfolio. ITPP-H sits on 25 acres of land, with 2.3 million sq ft of leasable premium office space and amenities spread across four buildings.

And a month earlier, in November, Clint entered into a non-binding term sheet with Indian property developer L&T Realty to develop nearly 6 million square feet of prime office space across Bengaluru, Chennai and Mumbai.

“One of the reasons we’ve been rapidly looking at deals in the business park space is that our portfolio is seeing very strong leasing and renewal activity,” Dasgupta said. “There’s a general nervousness among other developers, so we are finding very good value right now in the business park space.”

Amid the wider macroeconomic uncertainty, Dasgupta believes his confidence in the Indian business park sector is well placed.

“We’ve been in India for about 27 years, which is a really long time. We have a very well entrenched tenant base, and many of our tenants have been with us for 10, 15, 20 years… So when we talk to them about their business, we get some serious and genuine insights about what kind of growth they expect to achieve,” he said.

This long execution history, he added, is a key reason for Clint’s ability to “judge the market correctly”.

In addition, while there are concerns over layoffs by big tech companies globally, Dasgupta opines that this could be a boon for the India market.

Riding on tech challenges and opportunities

“If you look at what we’ve seen in the past… the need to save costs on technology actually becomes more acute during financial crises,” Dasgupta said. “So we actually think that we’re going to see a similar trend this time also, that more work will get outsourced to India by large tech companies to save on development costs.”

“We are in a market that’s seeing good growth and there’s hardly any other opportunity to participate in a real estate investment trust (Reit) in India except for us,” he added. “Also, a linkage to Temasek through CapitaLand is extremely valuable in terms of corporate governance. In my view, (Clint) is an opportunity to partake in a high growth market with high governance.”

One of the main challenges Clint faces, however, is the rise of work-from-home trends over the past few years.

As at end-September 2022, physical occupancy at Clint’s business parks stood at 43 per cent, up from 5 per cent the year before.

Dasgupta explained that a significant portion of the workforce in India’s tech sector was made up of migrant workers from other cities. When companies were doing large scale work from home during the Covid-19 pandemic, many of these workers had relocated back to their hometowns.

“Bringing them back (to the office) has taken time,” Dasgupta said.

In addition, he said companies were more flexible about work-from-home arrangements during the pandemic in order to retain workers as there was a boom in the IT services sector during Covid-19 that led to a big increase in the demand for talent.

“But now, we are seeing companies pushing their employees very hard to come back because one of their big challenges has been attrition; they found it much harder to manage attrition when people are working from home,” Dasgupta said.

Based on conversations with its tenants, Dasgupta said physical occupancy is expected to rise to 70-75 per cent by the second quarter of 2023.

“I’m pretty encouraged by the fact that companies are pushing employees to come back. That should drive up growth for the demand for office space,” Dasgupta said. “The Indian IT services sector has hired lots and lots of new employees in the last two to three years. Actually, if everybody came back to work, then there’ll be a shortage of office space.”