INVESTMENT IN PRE-LEASED COMMERCIAL PROPERTY & ITS FUTURE OUTLOOK
Pre-leased Commercial Real Estate (CRE) has been increasingly becoming one of the attractive investment opportunities in India over the last 5 -7 years. UHNIs, private equity funds both foreign and domestic, sovereign wealth funds, family offices, have been very actively investing in this asset class. Especially in an era post the demonetization drive, where the returns on fixed income products like G-secs, bonds, bank deposits are witnessing a declining trend, CRE is an attractive investment opportunity that can provide stabilized returns with appreciation.
Investment into pre-leased CRE is low to medium risk investments with debt-like returns during the investment holding period with an equity upside on exit from these investments. As CRE investments are income generating from day one, the owner enjoys debt-like returns during the asset holding period. These returns range between 6.5% to 8.5% p.a. to begin with and gradually improve on account of rent escalations, which is typically 5% per year or 15% after 3 years. These are stabilized returns due to lease tenures typically in the range of 3-15 years.
With investment in completed Commercial Assets, there are no risks associated with Land, Project Approvals, and Constructions delays. Regulatory initiatives including GST, RERA, REITs as well as demonetization will result in higher transparency that would further boost the commercial space demand and therefore makes a compelling investment choice.
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