Real estate is a preferred investment in India. Historically, owning a house and property was considered a status symbol and familial wealth for future generations. Even today, real estate is highly preferred as a safe mode of Investment in Commercial Properties with good appreciation, end-use, and rental incomes backed by attractive home loan interest rates.
Real estate suffered a setback because of the pandemic. As the lockdown was announced, offices, factories, and markets closed down, and workers returned to their hometowns away from work centres. This led to a further slump in demand and decreased rentals and overall property prices. However, the residential and commercial real estate market witnessed robust growth in 2021 and is expected to grow as economic activity returns to normal.
Commercial real estate has emerged as an investment alternative in recent years. Let us weigh the pros and cons of commercial real estate investments.
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High rental income
Commercial properties command a higher rental yield compared to residential properties. Rentals range from 1–2% in residential spaces, while commercial properties yield a 7–8% return because they are leased to corporations and businesses. Scarce availability of space in prime commercial locations drives rentals upwards.
Return to office
The last two years ushered in the work-from-home trend, and corporates’ demand for commercial real estate dwindled. With the COVID situation easing, many companies are calling employees back to a physical office, and hybrid work will be the norm. The demand for new commercial leases is set to increase, which will drive up rentals and property prices.
Stable Investment in Commercial Properties
Compared to residential real estate, commercial property investments are more stable. This is because commercial property is usually leased to corporations and businesses. The risk is low for the owner since the contracts are long-term leases with very little chance of default or fraud. A commercial lease is a long-term contract, thus ensuring no disruption in rentals and stable tenancy.
Increase in demand
India has emerged as a hub for offshore operations for top global companies in retail, banking, and information technology in the last few years. A large English-speaking population and top tech talent make India an attractive destination for global contracts. These trends are driving the demand for large commercial real estate in Tier 1 and Tier 2 cities.
New concepts in the commercial sector
After the pandemic, co-working spaces and smaller hub offices are in demand to cater to the flexible work, hybrid work, and smaller startup space needs.
Fractional ownership
Commercial properties are usually out of reach for retail and middle-class investors. Commercial property prices run in crores, making it unaffordable for common people. Fractional ownership or buying a portion from a large pool of commercial space is being offered to retail investors. You can invest as low as Rs 20–25 lakh and own a commercial space.
Factors to keep in mind while investing in commercial real estate
If you have purchased your first house and are looking to invest in a second property, you can invest in commercial property to diversify the portfolio.
With commercial investments, you need to hold the property for the long term. Invest the portion of your money that you can lock away for a very long time. Choosing the right location is crucial for a profitable investment in commercial spaces. Proximity to public transport, amenities, and other commercial areas is important. Finally, verify the builder’s reputation and compliance with regulations to stay on the right side legally.
