The rental yield for commercial property is usually 9-11%. In contrast, the yield for residential property is much lower at 2-3.5%. The demand for office space in India is likely to stand at around 200 million square feet over the next five years. Post the GFC, the prices in markets like Mumbai have dropped around 35-40% and have bottomed out in most micro-markets, offering investors a good opportunity to buy into commercial real estate.
India's macroeconomic growth story makes for a rather compelling reason to get one's own paragraph into it somewhere. Chosen prudently, and office real estate can let you do that in indelible ink. Last year, the demand for office space across India was 26 million square feet and this year is expected to see demand of 28 million square feet. The possibility of diversifying one's portfolio, the sheer pride of ownership and the benefits of the longer leases that typify commercial tenants are other reasons to look at commercial real estate investing.
Remember, you do not only make a profit on the sale of appreciated commercial property – the rental cash flows of a well-located office or shop space are considerable. Unlike in residential property, the income that can be generated from commercial property is what determines its value. In other words, the capitalization rate is actually the measure of the demand for the property. For those who do their homework well, investing in commercial property is a high-adrenaline and high-returns game that residential real estate investment cannot hold a candle to…
(Ramesh Nair is COO - business at Jones Lang LaSalle India)
