Key Factors to Consider Before Investing in Commercial Real Estate

Start with yield, and calculate it honestly

Rental yield is the figure most commercial listings lead with, so learn to check it yourself. Gross yield is the annual rent divided by the purchase price. Net yield subtracts what you actually pay to hold the asset: maintenance charges, property tax, vacancy between tenants, and any brokerage or fit-out costs.

Ask for signed leases and rent receipts, not projections. Be careful with offers of an "assured return": find out who pays it, for how long, and what happens when it ends.

Read the lease, not the brochure

The lease decides how predictable your income is. Before you commit, get clear answers on each of these:

• Lock-in period: how long the tenant is committed, and the penalty for leaving early.
• Escalation: how much the rent rises, and how often.
• Security deposit, and any rent-free fit-out period.
• Who pays maintenance, property tax and utilities.
• Renewal and exit terms for both sides.
• Whether the lease is registered.

Look at who the tenant is

For a pre-leased unit, the tenant matters as much as the building. Check how long the business has operated, whether it is the only tenant in the space, and how much of the building it occupies. One tenant leaving can turn a steady asset into an empty one.

Check the developer and the registration

Commercial projects fall under RERA as well as residential ones. Take the registration number from the developer, then verify it on the state RERA portal yourself: the project name, promoter, approved plan and delivery date should all match.

Then look at what the developer has already delivered. Visit a completed project and speak to the people running businesses there.

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Judge the location on what exists today

Offices depend on commute access and a nearby talent pool. Retail depends on footfall, visibility and parking. Visit at different times of day, count the people, and check what is operational rather than promised.

Also look at what else is being built nearby: a lot of similar space arriving at once can push rents down.

Plan the exit before you buy

Commercial units usually cost more per unit than a flat and have a narrower pool of buyers, so selling can take longer. Ask about transfer charges and any developer approval needed for resale, and think about who your likely buyer is: an investor who values the existing lease, or a business that wants to occupy the space.

Confirm tax and legal points with a professional

Tax on rental income, GST on commercial rent, stamp duty and the treatment of loan interest all differ from residential property. Have a chartered accountant and a property lawyer review the numbers and the paperwork before you pay a booking amount.

A short checklist

• Net yield worked out from signed lease terms
• Lease reviewed line by line
• Tenant and occupancy checked
• RERA number verified on the state portal
• Developer's completed projects visited
• Location visited at more than one time of day
• Exit route and resale conditions understood
• Tax and legal review done

If you would like a second pair of eyes on a specific project, our advisors can walk through the lease and pricing with you.

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