How to select an Ideal Commercial Real Estate Location?
If you are planning to embark on a commercial venture that requires considerable investment outlay, then you need to consider various aspects related to it. Most significant among them is the location where you plan to start the venture. Selecting an ideal location depends on various factors such as nature of commercial activity, the target clientele, transportation facilities, proximity to other facilities etc. It requires serious planning and extensive research to identify the ideal location for starting your commercial venture.
Factors to be considered
There are various factors that need to be considered while selecting the ideal location for starting your commercial venture. Some of these factors are:
· Establish a co-relation between the soundness of the location, where commercial activity is intended to be started, and its demand/supply dynamics. Proper research will have to go into this process. Otherwise one will end up buying commercial property in micro markets which have high vacancies.
· Ensure that the economy, population growth, job market as well as the future infrastructure development of the market is healthy.
· Check about the developer credentials, accessibility to public transport facilities, quality of property management of the commercial project.
· Finding a reputed real estate agent and a lawyer who can provide expert advice.
· Consider the frontage, the footfall as well as the dynamics of the adjoining catchment in case of investment in a retail outlet.
· Ensure that the amenities provided by the project developer match the commercial requirements of the business especially entrepreneurs who wish to purchase commercial property for self-use.
Investing in office space:
In case an investor is planning to invest in an office asset that is intended to generate income then there are various factors that he needs to consider:
· Cash flow break-up
· Vacancy factor
· Expenses like building maintenance, property tax and building insurance
· Lease term, lock-in period and expiry dates
· Capital appreciation potential in the long term
· Potential for refurbishment, refinancing and repositioning
Benefits of Investing in Commercial Space
Why should you invest in commercial property?
The rentals that accrue from commercial property are much higher when compared to the rentals generated from residential property. The rental yield from commercial property is about 9-11% when compared to rental yield from residential property, which is about 2-3%. The demand for office space in India in the next five years is also expected to be about 200 million sq.ft. What is notable is that post the global financial crisis, commercial prices in markets like Mumbai have scaled down by about 35-40%. A similar scenario exists in other markets across the country. This presents a lucrative opportunity for investors looking to invest in commercial space across all markets.
Demand
Demand for commercial real estate has been increasing every year. While it was 26 million sq.ft. in 2012, it has increased to 28 million sq.ft. in 2013. Some of the advantages of investing in commercial space include the prospects of diversifying one’s portfolio, the pride of owning commercial space as well as the long leases that commercial spaces provide.
Profit generation
Profit from commercial space is not solely based on the appreciation that sale of such property provides. It also accrues from the rentals as well as the lease value of such commercial spaces. In this context, it can be said that the capitalisation rate of commercial property depends on the demand for that property. Hence, investing in commercial space wisely will certainly bring in the big bucks.
