Every time you pass by a commercial hub in your city, multi-storey office buildings with attractive façades, swanky hotels, restaurants and the other infrastructure may be catching your attention. But it’s not all hunky-dory. What looks rosy from the exterior is not healthy from within. The fact is commercial properties are finding few takers in metros these days.

According to the findings of DTZ India reported by one of the business dailies, barring Bengaluru, the other major metro cities have not witnessed growth in large lease deals (of 1 lakh sq. ft. and above) in the Q4 of the calendar year 2014 vis-à-vis in Q4, 2013. In the Delhi-NCR not a single large lease was signed, though smaller offices – between 10,000 and 30,000 sq. ft. found takers. The other metro cities such as Mumbai and Hyderabad have seen slower growth over that reported in Q4 of the calendar year 2013.

The situation in the commercial property segment is grimmer than that in the residential property segment. Following are some of the reasons:
 

• Economic slowdown
• Falling demand
• Lesser demand from prominent sectors such as banking and financial services
• High rents in some regions
• Excess supply
   

There has been a trend that wherever rents are high and supply is in excess; demand has remained lower. For example, rents for commercial properties in Mumbai and periphery region are in the range of Rs 50 to Rs 220 per sq. ft. per month and this is why the demand in Mumbai region is sagging. But in regions where rents are low and prospects for commercial activity has been good, it has attracted business houses. For instance, on the outskirts of Bengaluru rent for a commercial property is in the range of Rs 32 and Rs 55 per sq. ft. per month - much cheaper, which is what’s attracting many IT companies.

PersonalFN is of the view that, every property market is driven by different factors. Although, rents and property values are the important factors; they are not the only deciding ones. Renting of offices at Bengaluru by a number of companies in recent times, suggests that prospects for the growth and development of the city matter a lot. Such factors are also affecting prospects of real estate companies especially focusing on developing commercial real estate.

PersonalFN believes investing in commercial property is trickier than investing in a residential property. Therefore while you invest in commercial property it vital for you to do a holistic study ascertaining the economic pulse of the region for your investment to fructify well, both in terms of capital appreciation and rental yields. Considering the large ticket size, often it gets difficult for investors to invest in commercial property. To overcome this, the Securities and Exchange Board of India (SEBI) has allowed Real Estate Investment Trusts (REITs) in India and has issued guidelines thereto. There is expectation that the coming budget may shed some light on crucial aspects of REITs such as taxation. There are some issues pertaining to tax leakages that require more clarity, which if fixed in the Union Budget 2015-16, may make REITs an attractive investment avenue for those wanting to invest in real estate. Having said this, PersonalFN believes, you should not get swayed merely by the attractiveness of any asset class and instead focus on your personalised asset allocation and diversify your portfolio wisely.

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