7 Key things to consider before buying a commercial property

Commercial property investment is considered reliable due to its capability to produce higher and assured returns. The emergence of global companies in India has driven up demand for commercial spaces.

According to a market report published by Mordor Intelligence, the Commercial real estate market is estimated to grow more than 20% during the 2023-28 period. Observing these predictions, real estate players have begun acquiring more such spaces.

An ambitious attempt to buy commercial spaces without appropriate research may result in complications in the future. However, a close look at the supporting aspects of this sector will strengthen the decision-making process.

How to choose a good commercial property?

The Commercial real estate sector presents itself as a bankable avenue of investment particularly because it has more chances of growth. Many elements are influencing the decision to buy commercial spaces. Some of these useful elements are summarized below:

Market Research

Well-defined research involves having acute knowledge of the market area being considered for investment. An investor needs to study data from multiple sources while analyzing their investment options. 

A report on the qualitative, desirability, and appeal of a property, and quantitative factors, rental income, and operational costs help eliminate unviable alternatives and narrow down to the property that will yield the most returns.

Location

A good locality instantly uplifts the value of a commercial property. It should be a culmination of all the benefits the dwellers can avail once they decide to invest in the property. Many aspects need to be ascertained for this, such as:

• Accessibility - A locality with proximity to well-known businesses and organizations will improve the standing of the property of the investor. 

• Demographics - Knowledge regarding the types of tenants and owners in the vicinity will help attract future occupiers.

Transport Connectivity

Reviewing the transit options, before thinking about buying commercial spaces for investment, should be one of the main prerogatives of an investor. For this, a region having a well-established transportation system with travel-friendly infrastructure should be on the research radar. A building with ample parking facilities and easily available public transportation such as buses and cabs becomes a valuable asset over time. 

Risk Factors

There are risks associated with the commercial real estate sector similar to other sectors in the economy. An investor must be aware of these probabilities and use their funds judiciously. 

• Environmental issues - A commercial building must be located in non-hazardous areas that will protect the dwellers from pollution. The property must be put in measures that protect the building as well as its occupiers.                                                                            

• Political and economic issues - A government goes through changes each time a ruling party establishes itself. During this overhaul, it is possible to witness an increase in interest rates, price inflation, new government frameworks, and regulatory reforms. An investor should make an informed decision based on these occurrences.               

Regulatory issues - Before signing an agreement an investor should ensure that the property possesses appropriate permissions and certificates. Having the required accreditations will allow the owner to operate the commercial property without hassles.

Investment Options

There are various options for conducting commercial property transactions. Such transactions require large funding. Commercial properties are valued based on availability, market rates, demand, etc. Investors should monitor these factors and choose a property based on their needs. 

Two types of investment options can be explored:

• Direct Investment: Purchasing parties having ample funds and in-depth knowledge to conduct a commercial real estate transaction independently can directly approach the sellers. It also means the buyers need to put in efforts, with their resources, to maintain and manage the property in a manner that attracts occupiers. 

• Indirect Investment: Approaching an organization or a firm consisting of experts partaking in the investment of commercial properties can ease an investor’s burden. Instead of being the sole owner and sole bearer of responsibilities and expenses, the investor needs to contribute a significant portion. 

Property Survey

A potential buyer should have all the information needed about a property before purchasing. The technical details, including the material information about a building, can be retrieved by visiting local municipality and state government websites. Under the National Land Records Modernization Programme, all the land parcels have a digital record. 

An investor should gain access to the relevant land records and also hire a licensed land surveyor to physically inspect and assess the property. The surveyor can produce photographs and documents which can be cross-checked with the existing land records. 

Legal and Ethical Standards

An investor should engage with lawyers who understand their legal responsibilities and follow the ethical code of conduct required while entering an agreement. Not only lawyers but any agent, realtor, or broker, representing their clients, who are investors and/or buyers, should follow ethical guidelines in line with their profession keeping their clients’ interests in mind. 

What types of Commercial properties are profitable?

Commercial real estate is a vast topic divided into many sub-categories. Each of the categories serves a certain purpose that benefits both the owners and the occupiers. As an investor and manager of a property, it would be useful to consider the following types of commercial properties as they have the potential to generate more profits.

Corporate Offices

As organizations grow, they need more space to house their staff. Reputed companies often look for commercial properties in locations prone to attract more business. Investors can look for such areas and set up a space that such companies find desirable.  

Retail Outlets

Luxury and branded retail stores tend to attract customers with avant-garde display styles. Such stores prefer to be located in business districts with similarly well-known branded shops and buildings. Setting up such stores might prove to be a costly affair in the beginning, but with careful planning and positioning such spaces can appreciate over time. 

Multi-purpose properties

Business Plazas, IT parks and campuses, etc. have allowed spaces around their corporate offices to be utilized for recreational purposes. The Bandra-Kurla Complex in Mumbai, HITEC city in Hyderabad, etc. are examples of commercial areas with an impressive presence of upscale hotels, shopping centers, and five-star restaurants. Buying commercial spaces in previously established business centers like these will help investors gain a strong foothold in the commercial real estate market. 

Conclusion

The increase in global interest in India’s growth is one of the main reasons for expansion in the commercial real estate sector. It has allowed real estate leaders to become more experimental with their commercial property ventures. 

The points above have been condensed to provide an overview of a significant portion of commercial real estate investing. Consult our team to gain a more detailed and technical understanding.