Last year, when COVID-19 had gripped the nation leading to the lockdowns, the uncertainty in equity markets and the low returns of the debt market turned many investors towards other investment options, and not surprisingly the Indian real estate sector attracted USD 5 billion in institutional investments in 2020, equivalent to 93 percent of transactions recorded in the year before.
The truth is that we Indians have always had a soft spot for two investments – Gold and Real Estate. And when it comes to property, residential real estate remains a prevalent theme due to its homeownership sentiment. But off late, many investors are finally seeing the potential of commercial properties and the many advantages that come with them.
It is important to realize that even though there are thousands of residential properties with enticing offers, as an investment they do not offer returns as high as commercial properties and carry their risks.
So, let’s look at some of the reasons why it might be a wiser decision to invest in commercial property rather than residential real estate.
Commercial properties lead to good rental returns over prolonged periods. Since the residential market hasn’t yet picked up the pace post-pandemic, it will take some time for prices to appreciate. Whereas, in commercial real estate, Grade-A office properties due to their high demand are already yielding high returns. The estimated return from residential properties is around 3-4%; whereas, from commercial properties, it is around 8-10%.
The Budget 2021 has also relaxed the debt financing norms for Real Estate Investment Trusts (REITs), and this might also pave the way for institutional funding in commercial real estate assets and help investors earn higher returns.
According to research by Anarock, work from home will not become the new normal in India. Due to bigger family sizes, smaller homes, inconsistent internet speeds, and vulnerable digital platforms, most people are preferring to go back to the office.
Moreover, the emergence of new businesses registered year-on-year is leading to an increased demand for commercial properties. According to the Central Registration Centre, around 16,000 new companies have been registered since lockdown. In addition to the start-ups, multinational companies are eyeing India as the hub for Data Centre Offices and seeking large commercial spaces, especially in Tier 1 cities.
Recently the big international giant – Barclays opened its second-largest office, in Pune. Major IT Companies and Corporates are looking for office spaces in Pune. Other metro cities are also not behind when it comes to witnessing the growing demand for commercial spaces.
Steady cash flow
The lease period of commercial properties ranges from anywhere between 2 years to even up to 10 years. The advantages of having such long lease periods are many. Firstly, you will always have a steady cash flow due to regular rentals. Secondly, you will not have to worry about looking for tenants every few months.
Residential properties on the other hand suffer from erratic cash-flows due to short lease periods. In most cases, the lease is only for 11 months.
Easier maintenance and upkeep
While residential properties put in a lot of money to offer attractive lifestyle amenities like swimming pools, kid’s play areas, etc., the commercial properties focus on amenities that can enhance the work capabilities and create a healthy, and positive environment at work. Hence, due to the lesser number of larger-than-life amenities as compared to residential properties, the maintenance cost in commercial properties is less.
Moreover, unlike residential real estate where the owner is always responsible for the maintenance of the property, in commercial real estate it’s the tenant who shoulders the burden of the maintenance.
Another benefit is the triple-net lease. This is a form of lease agreement where the tenant is responsible for any ongoing expenses of the building like maintenance cost, taxes, insurance, etc.
At the end of the day, real estate continues to be one the strongest and most promising investment options, and with the pandemic slowly coming under control, this market is bouncing back in most metro cities.
For example, in Pune, which is emerging as the next commercial real estate hub, the increase in IT hiring went up by 12% in May 2021. This also indicates that major IT companies and MNCs are shifting their focus to Pune.
To keep up with the need for world-class commercial spaces, the renowned real estate developers in Pune, Avishkar Advani Realty recently launched their landmark project, The Platinum Towers in Kharadi, Pune. The project not only offers commercial office space for sale in Pune but has been designed to cater to other commercial enterprises as well – co-working spaces, call centres, restaurants, supermarkets, shops, and multi-brand showrooms.
As the commercial real estate market continues to expand its footprint, The Platinum Towers has emerged as one of the best commercial properties in Pune. With its Retail Showroom nearing possession and Reliance Smart Superstore (opening soon) occupying two entire floors, it is an unmissable investment opportunity for every entrepreneur and investor who is planning to buy commercial property in Kharadi, Pune.
Categories: Knowledge Series