Investments have their level of risk. There is a certain element of danger with commercial real estate as well. However, keeping an eye out for specific market indicators might help an investor stay ahead of the game and be lucrative.
Investments are inherently risky. Along with the danger comes the opportunity to make a lot of money. What matters is that you understand your risk tolerance and how to discover the finest opportunity in whatever investment choice you choose to pursue. The same criteria apply to commercial real estate, which is a rather safe investment choice. The trick is to understand the characteristics of a solid commercial real estate market.
Any market can have a plethora of micro-markets. Any nation may be regarded as a market on a global scale, with its states serving as constituent markets, and cities, towns, and suburbs serving as micro markets.
So, let’s go through the key facts regarding a fantastic commercial real estate market – India – and how you may find additional potential markets based on the indicators you see in India.
Commercial real estate is a solid asset class due to its physical form, isolation from most other market influences, and typically consistent appreciation rate. As a result, it naturally follows that any market that benefits from these characteristics would be beneficial to commercial real estate. But what are the other noteworthy things that should not be overlooked?
Signs of a Healthy Commercial Real Estate Market?
- GROWTH: A robust business and development infrastructure is essential for commercial real estate. The greater the number of firms and the faster their growth, the greater the multiplication of places and assets that may be employed by them. Despite the impending epidemic, India has experienced an increase in the number of new firms, as well as a wider and faster uptake of new technologies. So, without a doubt, the first indicator is growth.
- GOVERNMENT POLICIES: Moving on to the second point, growth is heavily reliant on biz-friendly government policies. The recent presentation of the Union Budget 2021 placed a strong emphasis on the development of infrastructure and real estate. In addition, Maharashtra gave tax breaks for builders and developers. The stronger the market, the better the policy orientation.
- RATE OF VACANCY: The third critical factor is the vacancy rate. It is just a proportion of the commercial real estate assets that are currently available for occupation. There are high periods of economic activity when these rates are relatively low, and others when they skyrocket. Just keep in mind that an average rate of 4 percent – 5 percent works well for a robust portfolio.
- LOCATION: Even within the same market, vacancy rates might vary based on location. Assume a market contains assets for both manufacturing units and offices. The vacancy rate for one asset or both might alter depending on what business comes up in the location. Having a location with a good mix of assets provides you with plenty of alternatives should investment opportunities arise.
- TENANTS: A renter is always required in any type of real estate investment. After all, the tenant’s rent is the foundation of your monthly earnings. When considering a possible commercial real estate market for investment, keep tenancy in mind. Tenants that are stable and well-established are always the best bet. Also, read the Difference Between Residential Real Estate Tenants vs Commercial Real Estate Tenants.
- DYNAMICS OF MARKET: Market dynamics are not difficult to grasp. It only takes a lot of data collection and meticulous analysis. Even throughout the pandemic, the Indian commercial real estate market remained stable, and demand for offices, warehouses, and other asset types climbed in 2021. The commercial real estate industry was able to ride this revival wave and rebound better than ever before, thanks in part to the Atmanirbhar Bharat initiative and in part to global causes.
Creating a Solid Commercial Real Estate Investment Portfolio
While commercial real estate is one of the most reliable asset classes accessible, there are basic ground rules that an investor may follow to gain significant rewards. When constructing your commercial real estate investment portfolio, keep the following points in mind.
- A long-term investment is essential for constructing a corpus through commercial real estate.
- Diversify your portfolio by utilizing several asset kinds in various marketplaces.
- There is no such thing as “guaranteed returns.” Keep an eye out for such advertising.
- Your portfolio’s appreciation is determined by the market rental rate and the vacancy rate.
It is insufficient to be happy with a single market. Depending on your risk tolerance, you may experiment with different asset classes and markets to see how investments in various circumstances might help you achieve your goals.
The Assetmonk method of commercial real estate investing via fractional ownership is an ideal way for investors to enter the commercial real estate market. It is a high-end Indian real estate investment platform with properties in Chennai, Bangalore, and Hyderabad. It offers commercial real estate investment opportunities such as fractional ownership and crowdfunding starting at Rs. 25 lacs. IRRs range from 14 to 21%. To learn more about how we may assist you with your commercial real estate investing journey, please click on the link above
6 Signs of a Healthy Commercial Real Estate Market FAQs
A robust business and development infrastructure, biz-friendly government policies, vacancy rate, location, and stable and well-established tenants are always the best characteristic of a good commercial market.
Despite rising interest rates, which are expected to rise more in the future months, commercial real estate has performed well in 2022. Although forecasts vary by asset class, the general industry picture remains optimistic as the year enters the second half.