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Life Cycle of A Commercial Real Estate Investment in India
- Many investors eager to invest in commercial real estate often make the mistake of not knowing for exactly how long their investment is going to take. Or for how long they need to keep their investment to see good returns, upon which they can choose to either reinvest in another commercial realty asset, or sell their share & execute their exit strategy.
- Are you considering commercial real estate investment in India? Perhaps you’ve heard about the high potential returns from rental income, and you want to delve further in this underrated investment avenue.
- Well, you’re in the right place, in this blog we’ll go through the life cycle of a commercial real estate investment in India, and see what it’s all about.
The Market for Commercial Real Estate Investment
Based on Mordor Intelligence’s Growth Forecast for the commercial real estate sector in India, the market size is estimated at $US 40.71 billion in 2024. It is projected to reach heights of $US 106.05 billion by 2029, at an expected Compound Annual Growth Rate (CAGR) of 21.10% during this forecast period (2024-2029).
As per insights from Deloitte, a 2-3% increase is expected in Grade A office rents in major Indian cities this year, on the commercial leasing front. Metropolitan cities such as Bengaluru, Delhi NCR, & Mumbai are at the forefront of this commercial real estate revolution in India.
Now, these are great numbers for anyone looking to venture into commercial real estate investing in India. But apart from the numbers, let’s address why commercial real estate investments in India are attracting attention.
Steady Economic Growth
With the Indian economy experiencing steady growth & urbanization escalating, demand for commercial spaces is soaring. Investors have a diverse range of opportunities, from office buildings to retail outlets and industrial warehouses.
Stable Rental Yields
The right location and property in commercial real estate often deliver not only stable income streams through rental yields, but also offer investors the potential for long-term capital appreciation.
Rise of Alternative Investment Options
The increase in investments in Alternative Investment Funds (AIFs), especially related to commercial real estate, such as REITS and fractional ownership of commercial real estate, have contributed to the positive outlook of the commercial real estate market.
According to the Economic times, investments in alternative real estate rose to $418.7 million in the fourth quarter of 2023. This increased yearly inflows to $650 million overall, which is a significant sign of investor confidence in the AIF sector.
Life Cycle of A Commercial Real Estate Investment in India
The life cycle of a commercial real estate investment starts when you purchase your ownership stake in the property. Typically, a value enhancing and wealth generating investment lasts from anywhere between 5-10 years, depending on your exit strategy and the goals you have from your investments and portfolio.
Stage 1: Research and Due Diligence
It is crucial to conduct extensive research and due diligence before making any investments. Investors examine possible risks, location dynamics, property values, and market trends. This stage lays the groundwork for making wise decisions.
Stage 2: Acquisition
Once you’ve identified a suitable property for you, it’s time for acquisition. This involves negotiations, legal documentation, and securing financing if necessary. Investors aim to strike a balance between price, potential returns, and risk mitigation.
It’s essential to register the property with RERA (Real Estate Regulation & Development Act) 2016, and if you’re investing through fractional ownership platforms like Assetmonk to make sure that a Specific Purpose Vehicle is created for the purposes of investing in the commercial property.
Stage 3: Asset Management
After the acquisition, the company must shift its focus to asset management. This crucial process involves property maintenance & efficient tenant management: which is a key factor in lease negotiations.
It also involves ensuring not only optimal occupancy rates but also effective use of all available resources. There are 2 key things to focus on: Maximising returns, all the while keeping sure that your commercial property value is at the highest it can be.
If your commercial real estate investment is through REITs or a fractional ownership model, the fractional ownership platform (FOP) will take care of the property maintenance & asset management for you, taking a big burden off your shoulders.
Stage 4: Value Management
There are many things FOPs & investors can do to bolster the life cycle of their commercial real estate investments. These include (but are not limited to): strategic renovations, upgrades, repositioning, modernizing facilities.
Enhancing infrastructure and making your property up to date with smart and green technologies is another way to keep up with evolving market demands.
Stage 5: Income Generation
What is the primary reason for commercial real estate investment? Rental income: it’s a key component. Regular cash flows generated by tenants – who occupy the property – offer investors distinct benefits. Over time, lease agreements and rental escalations further contribute to exponential income growth.
Final Stage: Exit Strategy
Investors may choose to exit the investment at a specific point for profit realization or portfolio rebalancing. Common strategies for this include: outright property sale; refinancing, and entering into joint ventures.
Rates of Return in the Life Cycle of a Commercial Real Estate Investment
A number of variables, including market conditions, investment strategy, property type, location, & rate of return, can affect a commercial real estate investment. Investors should anticipate yearly returns of between 8% and 12% on average. Some markets or properties, though, might provide better returns, particularly with good management.
Bottom Line
Talking about commercial real estate, JLL India Real Estate Market report for Q3 forecasted significant office space absorption of approximately 45 million square feet in 2024, easily exceeding the benchmark set in 2023.
Looking forward, India’s commercial real estate sector paints a picture of potential and opportunity. With its fractional ownership model, Assetmonk invites investors to become active participants in this story rather than passive observers.
Assetmonk is leading the line in providing fractional ownership models for commercial properties; ushering in a new era in the dynamic real estate sector in India. The minimum entry ticket is set at 25 lakh rupees. This deliberate choice ensures that both seasoned and growing investors can partake in the benefits of commercial real estate ownership.
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