Commercial Property: An Emerging Asset Class for Real Time Investors

In today’s modern-day age, an investor will always look at the need to get good returns either in the long term or short term, any person who has sound knowledge of the real estate business will know that it is always the commercial property that will yield much higher results than a residential one.

When talking in terms of appreciation of the capital commercial property which are situated in the right locations offer better value than residential properties.

As per a report published by JLL, “The rental yields from commercial properties are anywhere between 5% to 12 % vis a vis in case of residential properties it is currently between 2%-4%”.

REIT & Employment Generation

The demand for suitable commercial property can yield good rental return potential these days due to the coming up of the REIT (Real Estate Investment Trust) and the increasing requirement for new employment generation options.

When it comes to commercial real estate investment opportunities, the best proposition lies in vibrant zones where physical and social infrastructure is superior to other areas.

New projects coming up near international airports always attract high leasing activity and provide great investment benefits to investors. With REIT, Commercial properties always have an upper hand, the likely trend will further add liquidity infusion in the commercial retail space and developers will come up with more projects in similar segments.

The earlier trend was commercial spaces were situated in major cities of India, but now commercial Grade A spaces are coming up in Tier II & Tier III cities also.

Many SEZ’s and IT parks have come up in these cities followed by logistics & Industrial parks that support effective transport.

These days the IT/ITES sector and the Infotech Companies are also looking to rationalize their spending and hence are moving to smaller-tier cities since real estate is becoming very expensive in major cities. This development has led to the development of such commercial property assets in these cities and the trend is likely to pick up in the future.

Return On Investment

Looking at the investment potential of commercial spaces, the best developers in Noida are also responding to the surge in demand which is also generating demand for residential around these upcoming projects. So, this symbiosis of commercial and residential works very well for the real estate market.

Earlier, the return on investment in the residential sector was good depending on factors such as the location and the builder brand's standing in the market.

The ROI was high due to capital appreciation which was way better than the low rental yield. However, these days the scenario has changed as the capital and rental yields are not as high as they used to be.

A stagnant scenario has emerged in this segment which made the investors look at the commercial property segment. As of now, office spaces are yielding higher returns to investors than the returns that are offered on residential ones. A paradigm shift in focus of NRI’s and HNI’s towards the commercial property segment has led to a surge in demand for retail spaces in India.

For Instance, in tier II such as Chandigarh & Pune, commercial real estate is becoming very popular with the exponential growth of the IT/ITE sector, rapidly developing infrastructure along with world-class education and medical facilities.

Many big firms will likely end the long-term leases to reduce operating costs and move to tier II cities making more and more commercial real estate viable for investors.