News & Views on Indian Real Estate

Monday, March 17, 2008

Commercial retail property heating up

Although, the residential property segment may not be performing well but the commercial property is certainly hitting the sky, says a report. Due to the corporate demand, the rentals have witnessed a rise of another 20% in the last three months. Indeed, the report claims the rentals to see a jump of 10-20% in very near future. This is because of the ongoing demand that continues to outstrip supply.

Usually individual investors, given the budget constraint, look for strategically placed bargain corners so that eventually they can attract good tenant or can even sell or lease to a brand looking for more space. The current trend sees individuals preferring mid and small-sized properties over the bigger ones as these are easier to rent out and always in demand. Developers feel that investing in such commercial retail properties, which started a couple of years ago, has now gained momentum due to a number of reasons. The advent of malls started off this trend which has now picked up as a few banks have started disbursing loans for these properties. This coupled with a boom in organized retailing, entry of foreign brands and rapid expansion of Indian brands has given it a further impetus.

There are various advantages that accrue to commercial investments vis-a-vis residential, which makes such investments a profitable deal. Capital appreciation as well as a steady income source via monthly rentals with yields of 12-14% stands in its favour. Moreover, the various options that have sprung up in retail have also played an integral role in generating high awareness levels.

Capital values are higher in retail spaces, they represent larger investments and a significant component of self-funding of upto 30-40% is required. This stands in contrast to residential properties which need only 5-10%. Despite this the rising boom in the retail sector has ensured excellent growth opportunities for individuals, thus making them turn attention to commercial retail as a viable investment avenue. Real estate developers in Mumbai plan to convert their not-so-successful retail malls into commercial office buildings due to high demand for office space from the IT/ ITES, financial services and telecom sectors. India had never seen demand for commercial property with such large floor plates.

Individuals are no longer eyeing only residential properties as a lucrative investment opportunity. Rather, it is commercial retail space that has now become hot property. We hear this often: “What’s the smarter move? Residential or commercial investment property?” It should come as no surprise that there isn’t a one-word answer to this question. You’ll arrive at your best choice – the one that maximizes your chances for success – by working through a decision process that includes some “global” issues, some local and some that are entirely personal.