Investing in commercial property is quite appealing for any investor. Generally, before investing in commercial property, first-time investors have this perception that only business class or big investors invest in commercial property but this is not at all true. Also, investors get confused over Commercial vs Residential property - which one is a better income option? Today Dwarka Expressway, Gurgaon has become the best place to have commercial property. There are several Commercial projects on Dwarka Expressway offering various investment opportunities.
Commercial properties include industrial building, office, retail, and warehouses whereas residential investment includes single or multi-family homes, condos, and apartments which people rent to live in ( use for non-commercial purpose).
Any kind of property is a good investment whether it’s residential or commercial. When we talk about Delhi NCR, Investing in Commercial projects on Dwarka Expressway, Gurgaon is a good income option as it promises high return. As in 2019, private equity participation is quite high in commercial assets, which result in more investment. Also, commercial real estate especially grades office properties - are the best performing real estate assets class.
Before investing in commercial property, you should consider some important tips on commercial property as you need to know a lot of things before purchasing a property.
You will get a return in commercial investment from two sources: rent and capital appreciation. Both of them depends on the location of the property. While investing look for areas where vacancy is less than 5 percent. It means the supply of the location is in check and most importantly tenants are less likely to vacate the place which will result in high rent and capital appreciation. If the vacancy is high that means the tenants have multiple options to move and negotiate the rent on their own terms.
If two buildings are in a similar location then the one offering better quality will get rented first. Needless to say, a better quality place attracts more investors which will result in better tenant retention and high capital appreciation.
Especially multinational tenants always want to pay a premium for good quality place. Always look for buildings that have more elevators, better view, higher ceiling height or have certificates like platinum ratings, LEED gold. Also, the high-quality property is more liquid and sold at a much higher rate.
Every city has different micro-market such in Mumbai, you have Nariman Point, Parel and BKC while in Gurugram, you have Sohna road, Golf course, Sector 83, Sector 68 among others. Each micro-market has a stock ( number of offices already completed and leased ) and also upcoming supply.
The rent and prices come down if the annual supply in the next 2 to 3 years will cross historical demand. If the supply is extremely high then it will affect both old and new buildings. In old buildings, tenants can renegotiate rents and escalation clauses while in new buildings, rent will be low as tenants have multiple options in the market.
Being an investor, it is very important to know about the interior fit-out of the property. When an office construction is completed in India, it is provided with bare shell ( basic building services with unfurnished interiors, lack ventilation, air conditioning ( HAVC system), plumbing, lighting, etc.) The tenants need to do everything flooring, air conditioning, ceiling, wiring, conference room, interior cabins, etc.
There are some tenants who ask the developer to do fit-outs for which they pay an extra fit-out cost whereas some want to do fit-outs on their own.
Fit-out also has two categories - Category A and Category B
Category A includes tenant’s own space fit-outs such as Suspended Ceilings, electrical and mechanical installations, Fire Systems and more whereas Category B is developing the internal space with a new vision that perfectly matched your company. Category B includes Private office spaces, Reception Area, Meeting and Conference Rooms, Floor Finish, Doors, Installation of Furniture and many more.
It is difficult to exactly predict the cost as the price varies from region to region and spaces. But for a rough picture, you can consider at least Fit Out Costs ( that developer quotes), along with training cost, costs of installation, infrastructure cost. Overall you can take a budget of 5 to 10 percent of the total project cost.
Always look for blue-chip multinational tenants and try to avoid smaller and unknown companies. Because these tenants generally pay rent on time, pay a higher deposit & increase the value of the property by staying longer.
There is a difference in lease structure of commercial vs residential properties. In commercial properties, the lease is structured as 3+3+3 or 5+5+5 which means 9 or 15 years lease with every 3 or 5 years escalation period. It is also one-sided. At any hour of the day, a tenant can vacate and the landlord cannot ask the tenant to leave for the lease period. They also have lock-in period during which time tenant is not allowed to vacate the property.
It's always good to understand how the lease is structured and the inherent risks involved while analyzing the investment. Usually, it is best for the investor to have a longer lock-in period.
In comparison to investment in residential property, here things take a longer time. From renovation to build out to finding new tenants and the leases also take longer time. Remember everything takes longer. So, have some patience while investing in commercial real estate.
Security Deposit:
In commercial properties, security deposits vary between 10 and 12 months’ rent. So, be cautious when a tenant offers security deposit of 6 months or less, this could mean that he/she might have some cash flow issues or look for short term option. Usually, startups ask for smaller deposits and shorter lock-in period.
Diversification on your commercial real estate portfolio is the best way to evaluate risk and enhance the potential return of your commercial income properties. If you invest all your savings in one property, then it can be risky. In case the tenant vacates the property, your rent will stop but still, property taxes have to be paid from somewhere.
That's’ why it is strongly recommended to invest in multiple properties across cities which will reduce variance in income by diversifying property-level risk.
To be successful in commercial real estate you really need to find a good investment opportunity. There are many good quality investment opportunities in Gurgaon, superb location for investors and especially its localities makes Gurgaon, a popular and profitable investment hub.
If you are looking for investment in Gurgaon, then 83 metro street is the best tip for a good quality investment. SVH 83 metro street is a new commercial project which is coming up with many USP for investors with a good return.
Some of the USP’s of 83 metro street -
For Expert advice on Investment in Commercial Projects on Dwarka Expressway, Gurgaon you can dial our Helpline number: 18002586600
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