What factors to consider before investing in commercial real estate?

Lease structure and tenant quality are the crucial factors to be considered in a pre-leased commercial property. © Provided by The Financial Express Lease structure and tenant quality are the crucial factors to be considered in a pre-leased commercial property.

Having given excellent returns over the years, commercial real estate is increasingly being seen as an attractive option for investors.

Shiv Parekh, Founder of hBits, says, “With dual returns in the form of rental income and capital appreciation, the sector has managed to carve its own space among different asset classes.”

Choosing the right Property

Choosing a commercial property requires investors to carry out thorough due diligence and analyse important parameters like location, valuation, building quality, tenant profile, market demand etc. as they have a decisive impact on the investment.

Parekh adds, “A good property that fares well on the above metrics is well equipped to give high returns at low risk.”

Location

From a business perspective, location is an important factor. Parekh says, “An adequate presence of business establishments, good connectivity and low vacancy rates generate regular rental income with high capital appreciation.”

Valuation

Valuation helps in identifying attractive assets. Experts say, it is also instrumental in determining the net income after accounting for expenses like insurance and property tax.

Building quality

According to experts, grade-A buildings attract MNC tenants which leads to better capital appreciation and a stable tenancy.

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Lease structure and tenant quality

Lease structure and tenant quality are the crucial factors to be considered in a pre-leased commercial property.

Parekh adds, “Properties with Grade A tenants give the best ROI. Grade A tenants usually have a longer lease and lock-in periods and enjoy robust creditworthiness generating regular rental income.”

Fractional ownership makes investing easier

Fractional ownership has made the commercial property market accessible to individuals. Parekh says, “It offers an easy way to invest in commercial property without the need to do in-depth research.”

He further adds, “The best fractional ownership platforms employ top external and in-house professionals to shortlist properties after thorough due diligence and analysis of various factors. It offers hassle-free ownership and transparency to investors through a detailed online property dashboard that can be accessed from any location.”

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