Is it a smart idea to invest in office space?

The Indian real estate industry is seeing a number of blockbuster developments, which are driving the commercial realty office segment.  Consider the following high-priced transactions:

• Byju’s, a fast-growing ed-tech startup, has rented a prime 5,701 sq ft office space in Mumbai’s Andheri East for a hefty Rs 13.9 lakh per month.

• Apple India extended their lease for five years on September 8, 2021, for 15,925 square feet across three floors at Mumbai’s Bandra-Kurla Complex (BKC).

• HDFC has extended its lease for an entire office building on Dr Annie Besant Road in Worli, Mumbai, for three years at a jaw-dropping monthly rate of Rs. 1.45 crore.

In addition, there are other new initiatives in the works. According to media reports, the Embassy Group is planning a new Grade-A office space building in Bangalore’s Central Business District (CBD). The project will be built on the site of the former Le Meridien Hotel and will offer 5.5 lakh square feet of leasable space. Is it a smart time to invest in commercial office property, given all of these recent developments? 

What is the present state of commercial office space? 

• As the vaccination rate rises and life returns to normal, more businesses are reopening their doors to staff. 

• Many corporations in India are already calling staff back to their workplaces. 

• New leases and renewals are expanding quickly, with even larger quantities predicted beginning in January of next year. 

• Beautiful office space purchases are taking place in India’s key corporate markets, fueled by the country’s gradual economic recovery. 

• International and local powerhouses such as Intel Technology, Google, Samsung India Electronics, Veritas Software Technologies, WeWork, ABB, and Future Technology School Foundation are already acquiring large-scale office space in a variety of locations. 

• Demand for commercial office space in city centers, CBDs, and other desirable sites is increasing. According to business analysts, this tendency will continue throughout metro cities.

Arguments for Investing

• Attractive Return on Investment (RoI), which ranges between 6 and 12 percent for commercial real estate.
• Rental returns of 6-8 percent of the property’s value
• Pre-leased commercial properties provide guaranteed rents. 
• Investors can select from a variety of office properties. 
• Demand for Grade-A office space is increasing in CBDs, SBDs, and fast-growing periphery zones. 
• You may begin investing in REITs with little sums. 
• Direct investments in commercial office property with high-quality tenants may help you earn a consistent income from the start. 
• Economic growth and increased hiring in the IT industry are causing office space to be quickly absorbed.

Things to keep an eye out for:

• Commercial office premises are not easy to liquidate. You can’t sell them right away to make money and prevent losses. 

• To generate excellent returns on investment, you need have a lengthy time horizon. 

• Because office units are often larger, they require more investment than residential properties. 

• Obtaining good-quality tenants is not always straightforward; unexpected tenant replacements are frequently difficult to come by.

• Maintenance, property management, and tenant issues all want your attention. 

Consider these factors before investing in commercial office space. Consult a real estate professional or advisor if necessary. Before you sign on the dotted line, seek professional advice and plan your investing strategy.

Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. PropertyPistol does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.