Feb 2021

Pre-Leased Commercial assets offer returns from day one


At present, there is around 550 million sq ft Grade A office supply in the top cities of India and more than 110 million sq ft of Grade A warehousing stock across India. If we look at commercial properties' sale, then pre-leased properties get maximum benefits in areas such as Noida, Gurugram, and other peripheral regions of Delhi. The most desirable choice for serial property investors, entrepreneurs and corporate houses is an investment in pre-leased commercial properties. A settled return on investment (ROI) is assured by the buyer of a pre-leased property from the outset. Besides the capital gain on the property that is bought, the property owners receive a pre-settled rental income.

The buying of a pre-leased property has several advantages. As mentioned by the 'nil' waiting for the ROI to begin, more capital appreciation over a period of time depends on the location of the project and construction projects taking place in the vicinity. A large number of pre-leased properties are currently on sale in the NCR of Delhi. Investors constantly search for pre-leased assets that have a broad potential for capital appreciation.

“Investment in pre-leased commercial properties are preferred since returns from most investment instruments like bonds, fixed deposits etc are low. They offer returns from day one and ranges from 9-12% depending upon the location and the long-term viability of the project. The appreciation in rentals is also close to 5-6% every three years and the vanity of having good brands as tenants.  The upside earn on equity on exit with capital appreciation on escalated rentals makes the investors earn up to 16-18%  per annum returns.” said, Benu Sehgal, President-Retail, Omaxe Ltd.

Highlighting the popularity of pre-leased commercial asset among the HNI’s, UHNIs and expartriate section of investors,  Achal Raina, COO, Raheja Developers said, “Post COVID people are looking for tangible and safer investment solution; a trend that is fast catching up is investment in pre-leased commercial properties that also is part ownership of large commercial assets/rented spaces. Investors can acquire parts of large commercial areas in a malls especially in food courts and Cinema complexes. The rent coming from such property is divided among investors as per the investment made. This trend is a golden opportunity for small investors, who have limited funds or do not want to put a large sum at one place. The good part is that Food courts and cinemas have longevity as the tenants stay for a longish period of 9-10 years.”.

At the time of the exit, the owner of the property will receive equity value along with capital appreciation gained on the escalated rent. Investors can earn decent returns, ranging from around 16-20% p.a. from pre-rented commercial properties. These can be further strengthened if a portion of asset purchases can be arranged through a combination of leverage via lease rental discounts available from banks and financial institutions and the asset owner's equity investment. Seeing the industry dynamics, it is clear that demand for commercial space will grow further at a rapid rate, offering steady standard returns and long-term capital appreciation.

Concluding Ankit Kansal, Founder and MD, 360 Realtors said, “In larger cities such as Gurugram,Bengaluru, Mumbai where the capital value is higher than other micro-markets, buying a leased office space provides a wide variety of investment opportunities to build a nifty business portfolio. All these cities see a diversified tenant mix from the IT/ITES, BFSI, Pharma, Manufacturing, e-Commerce, etc. sectors that offer balance and flexibility to the owner portfolio in terms of tenant profile. The demand for additional pre-leased property in these corporate hubs from different sectors is also bound to increase with positive macroeconomic variables along with positive regulatory measures, thus having a positive effect on pre-leased CRE valuations”.

Updated: 08 Feb 2021
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