Reasons for commercial property investment in Bangalore
Dec 14, 2013
Source : The Times of India

 

BANGALORE: The city of Bangalore has a large talent pool and is tipped as the knowledge hub of the country with a steady influx of Multinational Corporations (MNCs), Small and Medium Enterprises (SMEs) and start-ups which are the driving force for office space absorption. The political stability in the state is one of the reasons for companies to choose Bangalore as their base.

Nevertheless, MNCs that have been operating in Bangalore from their inception have grown leaps and bounds.

What are the options available for investment in Commercial Real Estate?
Buyers can opt for investing in spaces that suit their budget. The following are the options available to choose from:

Independent units/Divided spaces: This segment starts from small office units – ranging between 1,000-5,000 sq ft where the tenants are mostly smaller companies or startups. The demand for such spaces is stable in the market given the interest of small companies and startups.

– Pros:  Here the owner has the liberty/independence to choose a tenant of his choice and decide the terms of the lease.
– Cons:  The owner might be at risk if the tenant is of bad reputation.

Large floors of 25,000-50,000 sq ft: Large office spaces are usually absorbed by MNCs and large companies. The rental values are stable with longer lock-in periods (usually 3 years) and market linked increments at regular intervals.

– Pros: The owner’s interests are protected in this case. No risk of dealing with shady companies/corporations. Stable rentals. Good ROI (usually 7-8 per cent).

– Cons: Risk of vacancy if the market and economy become slow.

Undivided spaces:  Lowest is in multiples of 2,500 sq ft and goes upto 5,000 sq ft. Here, the buyer will be a part owner of a large floor and will have reputed MNCs as tenants guaranteeing stable rental yields, longer lock-in period and market linked increments at regular intervals (could be annual or once in 3 years).

– Pros:  Ideal for small investors. Such investments not only guarantee stable rentals but also provide appreciation on the asset. Good Return on Investment (usually 7-8 per cent).

– Cons:  Lack of independence to the owner in finalising the tenant as he/she would be a part owner among others for the entire space. The only option is to go with the majority. In some cases the developer takes the responsibility of finalizing the tenant after a background check on the tenant. Risk of vacancy if the markets/economy is bad or during terms like recession.

Investment in retail spaces: Touted as the best investment among other types of commercial spaces. Retail spaces are properties that guarantee good footfall and offer good visibility of products showcased in the show window.

Such spaces are usually on the ground floor and at prominent shopping locations. The ROI is the best at (8-9 per cent). It is best to invest in smaller Retail Spaces ie spaces in the range of 500-750 sq ft, 1,000 sq ft and go up to 5,000 sq ft.

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