DELHI : Investing in a commercial property is a tough decision to make. If unplanned, one may have to bear high losses. And when you are thinking of investing in a metro city like Delhi-NCR, the risk factor is even higher. There are several criteria to be considered before one takes a leap into the highly dynamic commercial market. For instance, prevailing vacancy levels in different locations could be a key factor.
Ravi Ahuja, Executive Director, Cushman and Wakefield explains, “The size of investment, risk profile of the investor and the investment term determines the choice of location. Prime locations, having lower vacancy levels, command a higher price. On the other hand, an investor may get a good deal in locations with higher vacancies which indicate subdued demand.” Thus, both options may be explored by an investor.
One needs to make an informed choice between high initial capital investment and recovering it through good rental returns and lower initial capital investment with lower rental returns. In the former case, due to high demand, vacancy levels are low and thus capital values are high while, in the latter option, due to reduced demand capital values would be reasonable.
“For instance, adds Ahuja, “Average vacancy levels in locations such as Sohna Road and Udyog Vihar in Gurgaon and Noida Expressway, are significantly high at 30-40 per cent. However, if we look at prime locations such as Cyber City and Golf Course Road in Gurgaon, vacancy levels are at 9-12 per cent.
Low vacancy levels may lure you to invest as the capital values would be low too. However, one needs to be cautious. Vikas Raj, Director, Cosmic Group explains why, “Take the case of Udyog Vihar. The vacancy levels are low in this area due to various reasons. To start with, it is an industrial area and thus MNCs do not prefer setting up their office here. Moreover, the location largely consists of large plots meant purely for industrial and IT/ITeS use which can only be used for captive purpose. This implies that in case one buys land or a building, it cannot be leased out to multiple parties but can only be housed by a single company.”
Thus, investing in commercial properties on the basis of vacancy levels can be tricky and is not without risks. However, if planned diligently, the level of vacancy in a commercial destination may be used to one’s advantage in gaining maximum returns vis-à-vis the capital investment.