Is it good to invest in Commercial property

Real estate is one of the most solid and a strong asset to invest in. It is a type of investment where prices don’t waver on a daily basis, which also makes it a very trustable source of investment. Off the various real estate types, land, residential properties, and commercial properties are the three main types that have the maximum and constant demand. Investing in these three types guarantees returns.

Investing in property is the most worth concept of investment in any of the real estate sector [residential or commercial]. But as compared to residential properties, such as rental apartments or single family homes commercial properties typically offer more financial reward, but there also can be more risks.

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“In general, the rental Return on investment (ROI) potential of commercial investment remains far better and more sustainable than residential space. Long term leases and contracts ensure a regular flow of income for the realty investors. In 2022, commercial real estate investment will be concentrated in offices, co-working spaces, and affordable shops. A growing trend in commercial real estate is fractional ownership. In this concept, instead of owning an entire property, the investor invests in a part of the property and enjoys handsome returns. This trend of fractional ownership will remain buoyant in 2022,” said Nakul Mathur, MD, Avanta India in 2022.

Reasons to invest in commercial property

Commercial real estate (CRE) is property that is used exclusively for business-related purposes or to provide a workspace rather than as a living space, Most often, commercial real estate is leased to tenants to conduct income-generating activities. This includes variety of properties like warehouse, manufacturing spaces, parking slots, retail shops, school, mall, theatre, office space, industry space, commercial land, etc., includes small storefront to huge shopping complexes.

  • Investing in CRE will increase the rental income. The average rental income of the residential real estate is 1-2% while that of commercial real estate reaches a staggering high of 8-12% thus offering 3 times higher yield.
  • The tenants of CRE will be in generally in business mind and therefore one can be assured of professional behavior.
  • The Commercial real estate provides excellent appreciation over a longer period as compared to other property types.

And here are the some complications which may cause difficulties in investing in Commercial Real Estate.

  • As I mentioned above the ticket size is high ,valued at 25-30 crore and upwards, the minimum investment required in CRE is typically exorbitantly high and therefore beyond the reach of a retail investor.
  • Investing in CRE can be challenging for a naive lone investor owing to the complex legalities and limited market opportunities.
  • Choosing the right property and geographical location requires extensive research and market knowledge. And one should more concentrate about this who want to buy the commercial property, investing in commercial property is beneficial but investing in right location is successful investment.

So, is Commercial Real Estate a better investment ? According to Sudarshan Lodha, CEO and Co-Founder Strata, there is no simple one-word answer for this. “While it is true that profitability is much higher in commercial real estate, entering the CRE market as an individual investor is tough. Legal complications, domain knowledge, financial components are various hurdles that come in the way of retail investors. However, now they can be solved by opting for REITs or fractional ownership,” Lodha told FE Online.