Commercial real estate (CRE) is property that is used exclusively for business-related purposes or to provide a workspace. Investors can make money through property appreciation when they sell, but most returns come from tenant rents.
Commercial Real Estate includes a lot of different types of properties such as:
Malls & Shopping Centers
Hospitals & Medical Buildings
Office Parks / IT Parks
Hotels and Multiplexes
From a strictly investment point of view, commercial real estate has a few immediate benefits over residential real estate:
- More stable income
- Longer leases ( usually 5 – 10 years)
- More opportunity for cash flow (more rental units available for the investor in a building to buy)
- Economies of scale (lower per-cost unit when buying in bulk)
Since it takes a larger amount of cash to invest in commercial real estate directly, most beginner investors are advised to start investing in commercial real estate in India through REITs and other specialized commercial real estate funds in India.
- Commercial Real Estate for Consumption
Investors can use direct investments where they become landlords through the ownership of the physical property. People best suited for direct investment in commercial real estate are those who either have a considerable amount of knowledge about the industry or who can employ firms who do. Commercial properties are a high-risk, high-reward real estate investment. Such an investor is likely to be a high-net-worth individual since CRE investing requires a considerable amount of capital.
The ideal property is in an area with low CRE supply and high demand which will give favourable rental rates. The strength of the area’s local economy also affects the value of the CRE purchase.
- Commercial Real Estate for Investment
Alternatively, investors may invest in the commercial market indirectly through the ownership of various market securities such as Real Estate Investment Trusts (REITs), exchange-traded funds (ETFs) that invest in commercial property-related stocks, or by investing in companies that cater to the commercial real estate market, such as banks and realtors. And another investment type is fractional investing allows people to pool in the money they can invest to create a large enough corpus to invest in some high-value projects such as commercial real estate, hospitality or sustainability-focused endeavours.
Demand for Commercial Real Estate
- The office market in top eight cities recorded transactions of 22.2 mn sqf from July 2020 to December 2020, whereas new completions were recorded at 17.2 msf in the same period.
- In terms of share of sectoral occupiers, Information Technology (IT/ITeS) sector dominated with a 41% share in second half of 2020, followed by BSFI and Manufacturing sectors with 16% each, while Other Services and Co-working sectors recorded 17% and 10%, respectively.