A quick guide to investing in commercial property

While an investment in a commercial property may offer greater liquidity, the funds required to make the investment will invariably be far higher than those required in a residential property

A person, who is buying a property, has to analyse numerous factors before making the investment. Moreover, these factors will also vary, depending upon whether the investment is made in a commercial property or a residential one. While first-time investors prefer to opt for residential properties, the commercial segment tends to attract investors who have a greater understanding of the realty market.

In terms of the fundamental differences, commercial spaces offer greater liquidity in the investment, as compared to residential properties. However, the funds required to invest in a commercial property, are relatively higher than those required for a residential space.

A good deal

There are many elements that one needs to consider, while making an investment in a commercial unit during a slowdown, cautions Sulekha Mandahar, head – sales and marketing, AMB Group. “Buyers should evaluate the price movement, infrastructure development (including social infrastructure), the presence of industries and employment opportunities, connectivity with other parts of the city and sustainable practices, to ensure that they get the best possible deal,” suggests Mandahar.

Elaborating on the commercial real estate segment in India, Anshuman Magazine, chairman, India and South East Asia, CBRE, says that the office market in India has witnessed a recovery, on the back of improvements in the domestic and US economies. “The country’s realty sector has remained a preferred destination for the corporate occupiers in the IT-business process management industry and the growing e-commerce segment. For most global corporate office occupiers, setting up a business base in the country and taking up space, will be tied in with their overall corporate strategies, as they continue to offshore and send knowledge/product-based work to India. India will continue to attract multi-national corporate firms owing to its talent pool, scalability and cost effectiveness,” he explains.

Growth prospects

Magazine feels that it will become imperative for development firms, to enter into strategic public-private partnerships with states, for attracting overseas investments into India’s urban centres. “Going forward, businesses will evaluate cities on the basis of sustainable infrastructure and state governments’ policies. The growth and development of transit hubs, will be vital for the long-term growth of commercial realty in the country,” he points out.

From a buyer’s perspective, one should also consider the growth prospects in rental income, while investing in commercial space. Experts point out that higher rental prospects, entail a higher property price. Other factors that make a commercial property attractive for investment, include access to metro rail services, good road connectivity, the presence of business establishments and proximity to residential areas. Experts suggest that big units may be better for long-term investments, emphasising on the adage ‘go big or go home’. Investing in a pre-leased asset may also be a good option, as it can start generating revenue immediately.

Investors also stand to benefit from periodic increase in rentals, as per the terms defined in the lease agreements.