Commercial Property Investment In India

Commercial Property Investment in India

By EVENTE CLINIC

Commercial property market continued to be buoyant in 2018, led by robust business confidence and bright prospects in the fastest growing economy in the world. This improvement in the business environment has penetrated to several sectors with India’s commercial office sector being a prime benefactor.

The year 2018 saw occupiers opting for large office spaces underlining the increased assurance of occupiers in the office market. Large deals with above 100,000 sq ft space are estimated to have accounted for around half of the gross leasing activity of 47 million sq ft in 2018, as per data from Cushman & Wakefield.

There is a huge amount of private equity capital that wants to enter the market. The demand for grade-A office spaces remains very strong and there is fresh demand for around 34 million square feet getting incorporated into the market every year.

So the entire non-residential site is just a fantastic place for developers, because they have the right occupiers in place who are paying rising rents. If a good commercial project hits the market, it gets occupied in months. During the first nine months of 2018, large office leasing rose 35% to 18.2 million and accounted for 50% of total leasing.

“Investments into India’s commercial real estate have been the highest in 10 years at approximately $2.6 billion during the first three quarters of 2018 and 2019 will only see a rise in the same” says Namrata Pandey Srivastava – Managing Director, Evente Clinic 

Gurgaon, Pune, Navi Mumbai, Chennai and Hyderabad have been the most talked about places for commercial investment. Office rental values in Bengaluru by 2019 end are expected to increase 6.6% and in New Delhi to 6.5%. “Investments into India’s commercial real estate have been the highest in 10 years at approximately $2.6 billion during the first three quarters of 2018 and 2019 will only see a rise in the same” says Namrata Pandey Srivastava – Managing Director, Evente Clinic

Five factors you need to consider when investing in commercial spaces

Location is the king – Location is everything. Commercial properties provide returns through two avenues, rent and capital appreciation. Both are heavily dependent on the location. Look for locations where vacancy is less than 5%.

Demand vs Supply – This is one of the first things a savvy investor has to analyse before committing to buying a commercial property. Every city has different micro-markets. In Bengaluru, there is ORR, Whitefield, Electronic City while in Mumbai you have BKC, Nariman Point and Parel, among others. Look for the one which suits you as an investor.

Quality of tenant – A good tenant can significantly increase the value of commercial property. Looks for bluechip multinational tenants and avoid smaller and unknown companies. Good tenants pay rents on time, pay higher deposits, stay longer and increase the value of the property

Lease structure – Commercial lease structures are very different from residential ones. They are structured as 3+3+3 or 5+5+5 meaning 9-year (or 15-year) lease with escalations every 3 years (or 5 years). They are also one-sided. The tenant can vacate at any time whereas the landlord cannot ask them to leave for the lease period. There should be a lock-in period (generally 3 years) during which the tenant cannot vacate the property. Ensure that as a commercial property owner yoy have that in place

Market rent vs in-place rent – This is a slightly advanced concept that institutional investors use to see how risky the property is. Reach out to us to understand the concept.

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