Commercial real estate properties include any building used for commercial purposes such as office spaces, warehouses, industrial real estate, retail structures such as malls, etc. As such properties generally offer a minimum of 5 to 6 per cent rental returns as well as additional 5 per cent property escalation per annum – this segment is surely known for churning consistent profits if one has invested well!
In the last few years too, India has seen a surge in commercial investing and even now, sales are gradually picking up! Being a popular investment choice and a source of passive income for many – there are some things you need to know before venturing forth in this segment. So, read ahead as we give you the top 5 factors you must consider before investing in commercial properties today.
1. Look for the right location
Identifying the right location is one of the most crucial factors to consider before choosing the property. If the location is good, it gets easier to procure a loan from the bank or find tenants who provide profitable rental returns. Look for locales that provide easy proximity to major hubs and offer good access to roads as well as public transport. Also remember to talk to local brokers and agents to get a thorough understanding of the area.
Another thing one must do is consider the area demographics. For example, is the overall area population continually growing or are the numbers slowly declining? A decreasing population in the area gives a hint that the property is experiencing a slump, and it’s best to avoid investing in it.
One such property that shines well in terms of location and demographics is Sheth Cnergy – a commercial office space in Thane West. Right near the Eastern Express Highway and near Viviana mall – this upcoming project is all set to be an iconic commercial space in the city. Along with spacious and well ventilated office spaces, the building also has beautiful terrace gardens, cafeterias, sit out spaces, a naturally lit environment, top notch security and more!
2. Understand market dynamics
The real estate market is ever-changing, giving birth to new trends and dynamics that help you decide which type of commercial sector is feasible to invest in. Hence, understanding these dynamics is a crucial factor, before you invest in a commercial property.
For example, the covid-19 pandemic has decreased the total number of footfalls in malls leading to a drop in retail investing. However, working from home has become the new norm and retail delivery has significantly increased leading to a rise in demand for industrial spaces such as warehouses as well as data centres.
3. Check documentation and approvals
Get an estimate of the documentation needed for the legal process of buying the commercial property. All documents such as planning permits, mortgage-related papers, tax documents, utility bills, approvals, and more need to be thoroughly checked by your legal advisors.
Remember to check for any hidden charges as well that may be listed in the sale agreement by the broker such as statutory charges, repair charges etc, which may prevent you from making large expenses in the future.
As for city approvals, it’s crucial to determine all the required city approvals and the estimated time frame it takes to get them done. You can discuss this with the local authorities and get a clear picture before purchasing the property.
4. Consider building amenities and management
The presence of amenities such as food courts, cafes, automated car parking areas, and even green parks in commercial space increases its demand and profit value. This fact is supported by the current Knight Frank report, which states that most global firms today are already planning to remodel their workspaces and provide better amenities to their employees after the pandemic.
Another thing to consider is if these amenities are available at minimum costing to the investors and do not end up draining your capital. One must also physically survey the property, analyse the blueprints, and ask important questions such as how much parking area is allotted per investor to avoid confusions later.
Along with amenities, one must also consider how the property is managed in day to day life. Check if all the common areas are clean and well-maintained, the security is top-notch, the building has a power backup, etc. Green certifications and energy-efficient utilities are an additional bonus!
5. Do a risk assessment
Risk assessment varies greatly between residential and commercial properties. For example, the success of adjacent residential buildings is similar whereas the success of 2 commercial buildings that stand side by side varies independently.
This is why doing a thorough financial risk assessment before purchasing a property is the need of the hour for every investor. The ideal way to go about it is to look at the financial performance of the property in the previous 3 to 5 years.
Another crucial aspect of risk assessment is to scan the existing tenant leases in the property to get a view of the kind of businesses in place. Avoid dealing with failing companies or businesses that are liable to default on their lease as it may be harmful to your profits. Opt for tenants with longer lease periods, as then you may not be left with vacant lots that may result in losses over time.
At Ashwin Sheth Group, we believe that considering these above factors before you set out to purchase a commercial property will ease your efforts and set you on the path towards future profits.