Why Are Real Estate Builders Investing In Commercial Spaces?

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Why Are Real Estate Builders Investing In Commercial Spaces?
Hakim Lakdawala - 19 March 2020

It is a well-acclaimed fact that the real estate sector is one of the key contributors to the nation’s economy. This segment works in a direct correlation with the changing lifestyles of individuals. As per a recent study by IBEF, the industry is supposed to account for 13 per cent of the GDP by the year 2025. With the residential space facing a slow-down, the realty sector continues to flourish. This development has been fuelled by the shift in the investor’s concentration towards the commercial spaces. Another estimate by IBEF suggests that due to this trend, the commercial office stock in India is expected to cross 800 million square feet by 2020 while office space leasing in the top eight cities is expected to cross 100 million square feet during 2018-20.
Here are some reasons behind the capitalising rise of investment in commercial spaces:

Government initiatives

Investment in this sphere is no child’s play, as it involves a huge amount and the impact of the purchase decision lasts for multiple years. The various policies pertaining to the buy-sell of properties have a great effect on the investor’s choice. However, the current budget brought with itself tax holiday announcement and loan relaxation, these elements served as a boon for buyers. Further, the Government is working relentlessly to encourage the growth of start-ups in the country. This culture subsequently accelerates the demand for commercial workplaces, making its market stronger. Such schemes and measures help in aiding the sales of unsold units.

Growth of multinationals

With a large number of MNCs setting their foot in India, they bring with themselves a host of opportunities. These do not simply entail increased jobs for the unemployed but it also means a greater demand for commercial workspaces. Especially in cities like Bengaluru, Hyderabad, Pune, and Gurugram, a steady demand for larger office spaces has been noted. This new trend has encouraged developers to come up with spacious commercial properties that befit the requirements of all interested parties.

Development of smart cities

The growth of more and more cities with a robust infrastructure and enhanced connectivity facilitated by the establishment of over 100 new airports pan-India has accelerated the commercialisation process. Both domestic, as well as foreign investors, are keen on investing in spaces located in these cities, as they tend to be economical and provide a host of modern facilities such as open office spaces, swimming pools, gymnasiums, movie theatres, and retail stores all under one roof. Additionally, these new-age cities are all set to become business hubs and some of them are even being recognised with the status of special economic zones.

Rate of Return

Investment in the realty sector involves huge sums of money when a large chunk is involved individuals desire substantial returns. As per a report, while residential properties are offering a yield of 2 to 2.5 per cent, and capital appreciation of 1to 2 per cent per annum, commercial properties are providing a rental yield of 7 to 9 per cent and capital appreciation of 4 to 8 per cent per annum. In a scenario like this investors are bound to indulge in the purview of lucrative commercial spaces.

The author is the Group Promoter, Goodwill Developers

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