Making an investment in real estate is often seen as a prudent financial move, and among the various choices available, commercial properties have been leading the way. Numerous cities in India present lucrative returns for those contemplating commercial property investments. If you’re exploring options and contemplating a venture into commercial real estate in India, this guide might be helpful. This article explores the advantages of investing in commercial properties and outlines the top three cities for such endeavours.
See also: How to write letter of intent to lease commercial property?
What is a commercial property?
A commercial property refers to any real estate utilised for business operations rather than residential purposes. These properties are specifically designed to generate income and encompass a variety of forms, such as industrial warehouses, retail shops, office spaces and establishments in the hospitality sector like restaurants and hotels.
Benefits of investing in commercial property
Some of the major benefits of investing in commercial real estate include the following:
- Higher rental income: Commercial properties typically offer higher rental yields compared to residential properties, often in double digits. With potential yields ranging from 12-14 percent in favourable locations, investing in commercial real estate presents a significant advantage in terms of earning through rents.
- Ease in dealing with tenants: Commercial tenants, often corporate entities, banks, or retail chains, tend to be more straightforward to deal with. Dealing with reputed tenants, such as banks or corporations occupying a portion of the property, can contribute to an overall appreciation in rental yield for the entire property.
- Regular inflow of income: Commercial properties provide a more consistent and regular income stream compared to residential properties. The certainty of longer lease durations in commercial properties adds stability to rental income, reducing uncertainties associated with residential property leasing.
- Longer lease terms: Commercial leases generally have longer durations than residential leases. This extended lease period ensures a stable income for investors, minimising risks associated with vacancies and income fluctuations.
- Property value appreciation: Well-located commercial properties often experience value appreciation over time. As the business environment in the surrounding area improves, the demand for commercial spaces increases, leading to a rise in property value.
Best cities for investing in commercial property
Investing in commercial property can be a lucrative venture, especially in cities with robust economic growth and infrastructure development. Here are top five cities in India that offer promising opportunities for commercial property investment:
Bangalore
Known as the Silicon Valley of India, Bangalore has a thriving IT sector, attracting numerous tech companies and startups. Investing in commercial spaces in tech parks and business districts can yield substantial returns. The city’s expanding population and business landscape contribute to a consistent demand for commercial properties, making it an attractive investment destination.
Pune
Pune is a prominent educational and IT hub, hosting numerous colleges and IT companies. Commercial properties near educational institutions and IT parks can offer excellent investment potential. It is witnessing the development of new business districts, presenting opportunities for investors to capitalise on the growing demand for commercial spaces.
Mumbai
Mumbai, the financial capital of India, is a hub for banking, finance, and corporate activities. Investing in commercial properties in key business districts can provide high rental yields and capital appreciation. Limited availability of land for commercial development in Mumbai makes existing commercial spaces more valuable, creating opportunities for investors.
Delhi NCR
Delhi, along with the National Capital Region (NCR), is a hub for government offices and corporate headquarters. Investing in commercial properties in central business districts and emerging business zones can be rewarding. The rapid urbanisation and infrastructural developments in NCR contribute to the increasing demand for commercial spaces.
Kolkata
Kolkata, with its rich cultural heritage, is also an emerging commercial hub. Commercial properties in well-connected areas and business districts offer potential for good returns. Compared to some other major cities, Kolkata offers relatively affordable commercial real estate options, making it an attractive destination for investors.
FAQs
Why should I consider investing in commercial property instead of residential property?
Commercial properties often yield higher rental income compared to residential properties. The rental yield from commercial spaces is typically in double digits, offering a more lucrative income potential for investors.
What makes dealing with tenants in commercial property easier than in residential property?
Tenants in commercial properties are often corporate entities, banks, or retail chains. Dealing with such tenants is generally smoother, and there's a higher likelihood of consistent rent payments without the challenges associated with individual residential tenants.
How does the income from commercial property differ from that of residential property?
Income from commercial property is usually more regular and consistent than that from residential property. Commercial leases tend to have longer durations, providing a stable income stream for investors with reduced uncertainty about lease durations.
Are longer lease terms beneficial for commercial property investors?
Yes, longer lease terms are advantageous for commercial property investors. They offer a more extended period of stable income, reducing the risk of vacancy and income fluctuations. Commercial leases often have durations that extend beyond typical residential leases.
Why is property value appreciation more likely in well-located commercial properties?
Well-located commercial properties are more likely to appreciate over time due to increased demand. As the business environment in the area improves, there's a higher demand for commercial spaces, leading to a rise in property values, providing potential capital appreciation for investors.
| Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com |
