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What Makes Indian Commercial Real Estate An Attractive Investment Option For Retail Investors?

What Makes Indian Commercial Real Estate An Attractive Investment Option For Retail Investors?

We no longer want to rely primarily on our earnings and savings. We want to invest our money and establish new income sources, don’t you agree? So, where can we economically invest? Commercial real estate in India. Because of its high ROI, commercial real estate investing in India is thriving and has been a mainstay of many successful portfolios.

Commercial Real Estate Is?

Real estate investments entail purchasing villas and flats. Is that how you perceive real estate investments? Let’s be honest: we’ve always thought of real estate investments as simply that. However, real estate is much more than that. Investors are progressively turning to commercial real estate, making it a more tempting option for prospective buyers.

Commercial real estate is a wide term that encompasses important market segments including retail, office, and industrial properties. It is defined as everything non-residential. A good example is a fast-food restaurant down the street. That edifice, as well as the land on which it stands, is utilized for commercial purposes. This category includes assets such as apartments, daycare facilities, condos, cinema halls, driveways, commercial floors, factories, and retail buildings owned by firms such as Croma,  Big Bazaar, and others.

In a brief, commercial real estate (CRE) is any property that is exclusively used for business purposes. There are currently multi-use facilities that serve both commercial and residential functions.

Commercial Real Estate Vs Residential Real Estate

Residential and commercial real estate are two aspects of the same coin. But, they are not the same. Many of the same concepts apply to both – location is crucial, they both generate cash flow and appreciation, and they both give tax benefits. However, comparing commercial and residential real estate is like comparing bananas with apples.

Commercial buildings, which are frequently categorized as office or retail have far longer leases than residential properties. These leases play an important role in establishing their value. Vacancy durations in commercial real estate are significantly lesser than in residential real estate. As a result, residential real estate investors will frequently be forced to cover a property’s expenses without the assistance of rental money. Rental revenue on commercial properties runs from 5% to 12%, while returns on residential properties range from 3-4%. As a result, commercial investments are more likely to be cash-flow positive than residential ones.

Commercial structures frequently have a larger return on investment than residential buildings. Commercial properties are frequently leased for more than 10 years, with the majority of the money going to the owner. The ROI on residential property is around 4-10%, whereas the ROI on commercial property is approximately 6-12%.

Why Should Retail Investors Park Their Funds In Indian Commercial Real Estate?

The Indian real estate business is undergoing remarkable growth, which is boosting the commercial realty office segment. So, it is a good time to invest in commercial office space in India.

  • Rising Demand: According to Anarock’s research, remote work will not become the new normal in India. Because of rising family sizes, smaller houses, intermittent internet connections, and susceptible digital platforms, the majority of individuals have opted to return to work. Since the shutdown, around 16,000 new firms have been created, according to the Central Registration Centre. Apart from start-ups, huge corporations are looking to India for Data Center Offices and large commercial buildings, notably in Tier 1 cities.
  • The IT sector’s need has grown: During the research period, nearly 8,100 IT businesses were established throughout metro regions, according to Nasscom. In India, these companies employed approximately 600,000 people.
  • REITs are always looking for more office space: The Embassy REIT, which is sponsored by Blackstone, now has a 42.4 million square foot portfolio spread among 12 offices in various locations. Mindspace Business Parks REIT (investors include GIC, Capital Group, and Fidelity) has a portfolio of 30.2 million square feet. With 14 million square feet spread across many Indian cities, Brookfield is the third most visible name on the list.
  • Additional demand from other companies: The extra office space aroused the interest of the banking, financial services, manufacturing, and consulting businesses. In Noida and Gurgaon alone, about 8.5 million square feet of commercial space are under construction. Net absorption in metro regions was 15.05 million square feet in Q3 2021, up over 8% from the same period in 2020.
  • Startup Development: According to Colliers India and CRE Matrix, India’s fast-growing startup industry will be a prominent office space occupier in the future years. It will result in the leasing of 29 million square feet between 2022 and 2024. According to the ‘Startups Scaleup’ report, notwithstanding COVID, office leasing activity by startups is predicted to expand by 1.3 times from 2019-2021 to 2022-2024. With a 34 percent lease share in 2019-21, Bengaluru is the leading startup hotspot, with significant startup areas including Koramangala, HSR, and Indiranagar. Assetmonk, for example, is a smart investment platform that offers some of the best commercial properties for sale in Bangalore, Chennai, and Hyderabad. You can also invest in these premium properties with Assetmonk with just Rs. 25 lacs via fractional ownership. Businesses flock to this location for a variety of reasons, including a well-developed ecosystem, technological capabilities, and an entrepreneurial culture.

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