There are a lot of developments in the commercial real estate sector and by the next 2020, lots of changes are there to happen. Thus, one must know all the facts related to it in the upcoming days. In connection to this following are some of the principles of long-term investment which if abided by, can help you earn much higher returns than most debt instruments. Keep the following points in mind while investing.
Location is everything. Commercial properties provide returns through two avenues— rent and capital appreciation. Both are heavily dependent on the location. Look for locations where vacancy is less than 5%. This will mean that supply is in check and tenants are less prone to vacate leading to higher rents and capital appreciation.
Two building in the same location can be there but the one with better quality will obviously be getting a better rent. It will also attract better quality of tenants. Needless to say, that it will fetch the investor higher rent, better tenant retention and higher capital appreciation. Multinational tenants are also willing to pay only for quality.
3. Demand vs Supply:
This is one of the first thing that a savvy investor has to analyze before committing to buying a commercial property. Every city has different micro-markets. Each micro-market has a stock (amount of office already completed and leased) and upcoming supply as well.
4. Quality of Tenant:
A good tenant can significantly increase the value of a commercial property. Look for blue-chip multi-national tenants and avoid smaller and unknown companies. Good tenants pay rents on time, pay higher deposits, stay longer and increase the value of the property.
5. Interior Fit-outs:
When an office is delivered in India, it seems like a garage. All the fit-outs are often done by the leaser while at times the lease can also ask to do the fitments by themselves only. However, in the second case only it is beneficial for the leaser as the tenant will tend to stay longer in order to sufficiently recover the cost.
6. Base-rents vs Fit-out rents:
Developers often dupe investors by showing higher rental returns by including the fit-out rent component while hustling them for a higher price. But one must keep in mind that the fit-out rents are not permanent and are paid only for a fixed period that is like 5 years only.
7. Lease Structure:
Commercial lease structures are very different than that of the residential ones. They are usually 3+3+3 or 5+5+5 that is likely to be minimum of 9 years and maximum of 15 years with an increase every 3 years or five years. They are also one sided like the tenant can vacate any time but the landlord cannot tell to vacate. There is also a lock-in period of 3 years when the tenant cannot vacate also. In general, the longer is the lock-in it is that better for the investor.
8. Security Deposit:
Security deposits in commercial property varies between 10-12 months’ rent. Be careful when the tenant offers 6 months’ or less as that can mean that they are looking for a short-term options or cash-flow problems.
We all know that diversification reduces risk. This is specifically true in commercial real estate. If you invest all your savings in one property, you are exposing yourself to higher risks. In case the tenant vacates, rents will stop as the maintenance payments, property taxes etc. are to be paid. Investing in multiple properties across cities will reduce variance in income by diversifying property variance risk.
Therefore, if one keeps the above-mentioned factors in mind while leasing commercial real estate, the outcome would be much better. In connection to this one can happily rent one of such upcoming commercial projects in Sector-73, Noida of Delhi NCR. Anthurium is such a commercial property for lease in Noida, offering smart digital offices and virtual offices for businesses. The place is situated at the most convenient location for both the employees and the companies. With its well-designed & eco-friendly commercial space, Anthurium is the next generation workspace.