Commercial Real Estate

A recent reported that top 10 office markets in India witnessed 11-26% rental growth in Q1 2018. The term commercial real estate investment refers to land or buildings/construction aimed to effect income in the form of rent or capital interest. Essentially, any investment in land needs to be for a commercial purpose.

Commercial real estate is one out of the 3 main types of the residential and commercial spaces. The name suggests that such real estate is majorly used for trading and businesses to realize their business goal. Another way to use the commercial spaces is by leasing out land portions to businesses for a quoted rental.

Commercial leases can run from a range of 1-10 years, and retail spaces between 5-10 years.

Let us have a look glimpse of the 4 classes of commercial real estate:

Commercial real estate can put into 3 classes: class A, class B or class C.

  • Class A is basically means buildings in terms of aesthetics, age, quality of settings and location
  • Class B buildings are aged and not as price competitive as Class A buildings
  • Class C buildings are the oldest in age, usually more than 20 years located in less significant areas and call for restoration and work

Commercial real estate has been growing over all the years. Putting money in commercial real estate is of course profitable and help to cushion against the dynamism in the stock market. Individuals make the most on the rented out properties and also when they sell commercial spaces at lucrative rates. The specialized knowledge of a commercial real estate company is helpful as the rules and regulations governing such property vary by state, district, municipality and industry and size. Construction companies prefer to break the project into smaller units to mint money on each small project.

Advantages to commercial real estate spaces:

  1. Attractive leasing rates- There are some areas where new buildings/construction is limited by law or land. Commercial properties can seek high returns and a great deal of monthly income. Industrial spaces on the other hand have low overheads and rentals
  2. Commercial contracts are generally set out for longer duration which in turn is quite cash lucrative. A specific flow of cash is established with the land owners, occupied for long term tenants.

Who can invest in commercial spaces?

All business owners can own a commercial real estate land. It’s always recommended to own a space over renting it.

Apart from that, investments in commercial real estate is huge and hence it will be good to assume that only high net worth people will invest. This will require considerable amounts of startup capital. Also it will be good if people investing in commercial real estate are those who have good knowledge about the industry type and its legal, financial and regulatory aspects. Commercial properties real estate is high-risk, high-reward area business to attract people with great acumen and skillset.

Commercial properties can be of the kind as mentioned, big malls, office towers, small warehouses and single-shop buildings, single gas stations commercial real estate and convenience stores.

When looking at commercial properties, supply and demand are the significant most factors. Demand and supply are negatively related to each other, areas where empty spaces are more and new developments are low directly affects the rentals and acts as a hedge of a higher rate of appreciation. The ideal property in a favorable location affects the value of your purchase. Time & costs need to be perfectly balanced in commercial real estate properties.

Ways to invest in commercial properties:

Direct Investment:

Direct investments in commercial spaces is simple. Any investor can buy small retail properties directly or through middlemen where then the down payments will be quite high compared to residential properties. Real estate limited partnerships are another option, but quite they involve huge investments.

Indirect Investment:

Indirect investments are made when shelling out considerable sum of money is not plausible. Also to avoid the challenges of direct ownership, one opts for indirect investment in commercial properties.

In the year 2018, 23% year-on-year increase in office space demand, with pan India absorption recorded at 11.4 million sq ft of was witnessed in the first quarter itself. Admist the stiff competition, the rentals are spacing up in several micro markets across India like Delhi NCR, Kolkata and Hyderabad as well.

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