Do you want a monthly income from your store, office? Commercial real estate can boost rental income – Here’s how

Image source: FREEPIK (REPRESENTATIONAL) Commercial real estate can increase rental income

Commercial leasing activity is picking up on the back of a robust economic outlook. Most large companies now have back-to-office programs in place. Pent-up demand in the market is also fueling growth.

Traditionally, commercial rentals have been a better investment option than residential markets as they can provide recurring rental income. Hence, the investor fraternity is once again betting aggressively on the commercial market, which includes a wide range of assets such as offices, condominiums, coworking spaces, retail stores, and more.

However, as with any other form of investment, there are a few basic rules that must be followed in the case of commercial investments. This can ensure higher rental investment returns and lower overall risk.

Tips that can boost rental returns in commercial investments:

1. High Demand Locations

Gunjan Goel, director of Goel Ganga Developments, said it is always better to look for high demand locations. A location with high demand will yield better yields. Demand is rooted in a multitude of factors such as the availability of business parks and IT clusters, public transport systems such as metro and commuter stations, nearby shopping malls and retail outlets, etc Similarly, airports and large convention centers also fuel commercial activity and can make rental terms profitable for investors.

The role of social infrastructure which includes schools, colleges, health facilities, banks and ATMs, etc. can also allow the investor to reap higher returns.

2. Quality properties

Just like the location, the quality of the property is also very critical. Even in the same location, different properties can show varying rental yields. “A good quality project will always attract better clientele and have less chance of being cancelled, so it is important for investors to look at the types of properties,” said Nakul Mathur, MD, Avanta India.

Some of the key parameters to consider include elevators and escalators, facilities, lobbies and galleries, building vantage points, and more.

3. Rental conditions

In commercial real estate, popular lease periods are 3+3+3 or 5+5+5 (over a period of 3 or 5 years, leases are renewed). There are also rental conditions such as lock-up periods (during the lock-up period, the tenant cannot cancel the transaction). Likewise, there are customer-specific offers, in which a tenant can cancel before the lease term expires.

“When drafting the lease agreement, an investor should look for a favorable deal. Generally, extended lock-up periods are advised as this will give the landlord some advantage,” said Auric Group Partner Mukesh Goyal. , adding that one must also be attentive to the needs of the tenant and include them in the terms of the agreement. “A better landlord-tenant relationship is the cornerstone of a prudent commercial leasing business.”

4. Deemed tenants

If a tenant is a large business with good cash flow, this will ensure a hassle-free business as well as consistent rental income without any hitches. Tenants that include reputable companies and popular start-ups can be a good bet. Meanwhile, with small businesses there is a risk of low cash flow which can also impact leasing. Additionally, bringing a big business such as a top notch company to the premises can increase the overall brand perception of the building and help attract a few other good deals.

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