With the ever-evolving business landscape, the significance of strong commercial management has surged to unprecedented levels. The complexities inherent in commercial relationships, coupled with the insatiable need for improved data management, advanced analytics, and the transformative power of digital technologies, have propelled commercial management to the forefront of organizational success. As per the statistics highlighted by Mordor Intelligence, the contract management market continues to grow and is projected to reach a staggering $8.1 billion by 2023, with a compound annual growth rate of 14.1%.
Commercial management encompasses a multifaceted array of responsibilities. It embodies a strategic approach that harnesses the power of effective negotiation, meticulous risk assessment, contract oversight, and streamlined processes to optimize outcomes and safeguard profitability. In an era where collaboration and adaptability are paramount, organizations that prioritize and excel in commercial management stand poised to thrive amidst the dynamic challenges of the modern business landscape.
Construction Industry in India
The construction industry holds immense significance for India’s GDP, exerting both direct and indirect influence on the nation’s economic growth. Market research analysis reveals that the infrastructure construction sector alone was valued at an impressive INR 14.61 trillion in 2021 and is anticipated for impressive growth, with a projected CAGR of 17.26% from 2022 to 2027.
Moreover, the industry acts as a significant contributor to employment generation in the country. As per the Indian Brand Equity Foundation (IBEF), the sector employs a vast number of individuals, encompassing both skilled and unskilled workers, thus significantly contributing to the nation’s labor force.
Recognizing the pivotal role of infrastructure development in fostering economic progress, the Indian government has prioritized enhancing the country’s infrastructure. The Ministry of Finance of the Government of India has allocated substantial funding to numerous infrastructure projects, spanning transportation, energy, and urban development domains. This focused investment aims to bolster the economy by laying a robust foundation for sustainable growth and fostering improved connectivity and quality of life for citizens across the nation.
Challenges
The construction sector faces several challenges that hinder effective commercial management practices. Project delays and cost overruns are prevalent in this sector. As per the Ministry of Statistics and Programme Implementation’s latest report in 2023, a significant number of infrastructure projects in India faced cost overruns and delays. Out of 1,449 projects valued at ₹150 crore and above, 354 reported cost overruns, while 821 projects suffered from delays. Also, improper procurement planning and strategy, inaccurate cost planning, poor contract administration, and cash flow management difficulties further compound the challenges. Conflict avoidance and inadequate change management processes also pose obstacles. Addressing these challenges requires a holistic approach, encompassing improved procurement practices, accurate cost estimation, robust contract administration, proactive cash flow management, conflict resolution mechanisms, and efficient change management processes. By overcoming these hurdles, construction companies can enhance project delivery capabilities and drive sustainable growth and success.
Overcoming Key Challenges by Implementing a Robust Commercial Management Process
Effective commercial management provides numerous benefits for the construction sector. It helps optimize costs by identifying cost-saving opportunities, minimizing project overruns, and implementing value engineering exercises. Furthermore, it enhances project efficiency by streamlining procurement, contract administration, and change management processes. A skilled commercial expert ensures effective communication and collaboration among all stakeholders, fosters positive relationships, and maintains the organisation’s reputation.
In India, where the construction industry is growing rapidly, businesses need strong commercial management to navigate the complexities of projects. By leveraging the expertise of commercial experts, businesses can enhance their financial performance, mitigate risks, and deliver successful outcomes.
How implementation of Commercial Management Mitigate the Challenges
Balancing Time, Cost, and Quality
The success of any project, regardless of the industry, depends on three key factors: time, cost, and quality. A commercial expert is responsible for balancing these drivers against the requirements of the client or organization. In the construction industry, this is especially critical, as projects often have strict timelines, limited budgets, and high expectations for quality. A skilled commercial expert ensures that these factors are carefully managed and aligned to achieve the desired outcomes.
Understanding Stakeholder Requirements
Understanding the needs of all project stakeholders is one of the major responsibilities of a commercial expert. This involves the client, consultants, and contractors in the construction sector. By comprehending their objectives, expectations, and constraints, the commercial expert can provide valuable insights and guidance throughout the project lifecycle. This involvement begins in the early stages of project inception and continues until project closeout.
Pre-Contract Commercial Management
During the pre-contract phase, a commercial expert performs several critical tasks. Firstly, they thoroughly analyze the project and client requirements, taking into account factors such as feasibility, stakeholder involvement, risk assessment, and financial considerations. This analysis forms the basis for developing a comprehensive cost plan that provides early estimates for the project’s design, construction, operation, and maintenance phases. Additionally, the commercial expert advises on the procurement strategy, ensuring that it aligns with the project’s objectives, timeline, and budget.
Tendering Strategy and Contract Award
The commercial expert plays a crucial role in developing an effective tendering strategy that focuses on transparency, fairness, and cost minimization. By creating robust tender documents, selecting tenderers, and conducting commercial evaluations, the commercial expert safeguards the client’s interests and promotes healthy competition. They also ensure that the contract is awarded to the most suitable party, considering factors such as technical competence, financial capability, and compliance with contractual requirements.
Post-Contract Commercial Management
After the contract is awarded, ongoing commercial management is essential to ensure contract compliance and identify opportunities for improvement. The commercial expert overseas contract administration, valuation of works, change management procedures, cost reporting, claim management, and dispute resolution. By closely monitoring these aspects, the commercial expert ensures that the project progresses smoothly, mitigates risks, and maintains financial control.
Conclusion
Strong commercial management is vital for the success of any business, and it holds particular significance in the construction industry. By balancing time, cost, and quality, understanding stakeholder requirements, and effectively managing contracts and finances, commercial experts play a crucial role in achieving profitable and successful projects. In India, where the construction industry is a key economic driver, businesses must prioritize commercial management to thrive in this competitive landscape.
Disclaimer
Views expressed above are the author’s own.
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Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvIT) promise long term capital infusion into the commercial real estate. The recent tax proposal has the potential to change the model of offerings from companies managing these. It is possible that it could be a beginning of an efficient market.
Evolving regulation may impact the growth of Real Estate Investment Trust (REITs) and Infrastructure Investment Trust (InvITs) in India. The year 2023 has become another landmark year for Real Estate Investment Trust (REITs) and Infrastructure Investment Trust (InvITs) in India. Finance Minister Nirmala Sitharaman in the Budget 2023 enhanced the scope of taxation of REITs and InvIts. As per the change, a portion of distributions by REITs and InvITs, classified as repayment of debt (or return of capital) in the hands of unitholders will be taxed. These will be taxed in the hands of unit holders from April 1, 2024 (assessment year). It will get covered under the ambit of other income.
REITs and InvITs make distributions to their unitholders in the form of interest, dividend income, and rental income all of which have pass-through status and are taxed in the hands of unitholders. A fourth is through the return of capital. Until now these were neither taxed in the hands of the trusts nor with unitholders.
What does it mean for REITs and InvITs?
Prior to this regulation change, the repayment of debt was not taxable to both unitholders and Trusts. With the change, the issue of double non-taxation (earlier scenario) has been addressed. The update on tax rules, however, is likely to impact the distribution models of REITs in India.
REITs and InvITs are primarily return-giving income tools in the hands of shareholders. A REIT comprises a portfolio of commercial real assets, a major portion of which is already leased out, an InVIT consists of a portfolio of infrastructure assets such as highways and power transmission assets. From the evolution point-of-view, REITs and InvITs are yet evolving. Linked with the performance of the built environment in India, REITs, in particular, have the potential to become an important investment option. In addition to returns, unitholders also benefit from the capital appreciation of the units held. Moreover, at present, over 40 percent of the existing surplus cash was distributed through this mode.
The state of commercial real estate
Commercial real estate in India has witnessed a resurgence during the post-recovery phase of the Covid pandemic. Amidst market volatility, real estate investment in India is gaining popularity, possibly due to increasing per capita income and improving social infrastructure in Tier-II and Tier-III cities. The shift to hybrid work models has led to a surge in demand for office spaces in key cities across the country, with the net absorption of office spaces in the top seven cities, including Mumbai, Bengaluru, and Hyderabad, reaching a three-year high of 38.25 million square feet in 2022, according to JLL India. Moreover, the net absorption in 2022 exceeded the five-year pre-pandemic average (2015-2019) by 3.1%, indicating the robust resilience of the Indian office markets.
The impact on REIT and InvIT
The commercial real estate sector in India is expected to grow further with the rise of REITs and InvITs. These investment options were introduced by the Indian government to attract long-term capital and increase private participation in real estate and infrastructure. According to the National Infrastructure Pipeline, the country requires the funding of over US$1.4 trillion by 2025, which can be met by these investment options. REITs and InvITs have already raised more than US$4 billion in India, and the market capitalization of listed REITs and InvITs is over US$7 billion and US$10 billion, respectively. The initial performance of these options has been promising, and it is expected that more investments will be made in India through them.
What lies ahead?
The recent change in taxation only indicates a rising level of transparency and efficiency in the market towards regularised products. There is a parallel one can draw with other evolved investment segments like mutual funds and insurance industries. Hence, just like these evolved industries, the REIT and InvIT markets need more awareness. Sustained efforts on educating the masses will also give rise to a new set of investors. The REIT potential in India is huge. Moreover, as India’s stock of Grade A commercial asset grows, it presents great opportunities for REITs – and for their potential retail investors. Retail investors are nonetheless excited at the new and easier real estate investment opportunity that REITs would open up for them.
The growth of Real Estate Investment Trusts (REITs) will help in the expansion of the quality real estate universe in India, besides giving developers another instrument to exit their projects. REITs in India will prefer to invest in the highest quality or Grade A properties — due to the higher rental yields in this asset class. This is only the beginning!
Disclaimer
Views expressed above are the author’s own.
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The management consulting industry has always been one of the most dynamic and innovative sectors of the economy, and it is now undergoing significant changes that are transforming the way it operates. With new technologies and business models emerging, management consulting is evolving to meet the demands of an ever-changing business landscape. One of the most significant innovations in management consulting is the emergence of new technologies that are transforming the way consultants work.
Artificial intelligence (AI) and machine learning are being used to analyze data and provide insights that were previously impossible to obtain. This allows consultants to make more informed decisions and provide more valuable advice to their clients. Additionally, the use of cloud computing and other technologies is enabling consultants to work remotely and collaborate more effectively with their clients. Another innovation in management consulting is the rise of new business models. Traditional consulting firms have long relied on a model where they charge clients by the hour or by the project. However, new firms are emerging that offer a different approach. For example, some firms offer a subscription-based model where clients pay a monthly fee for access to a team of consultants. This model is attractive to clients who want ongoing support and advice, rather than just a one-time project.
The management consulting industry has traditionally relied on highly skilled consultants to provide strategic advice to businesses. However, the industry is undergoing significant changes as new technologies and business models emerge.
As an Industry Expert and Co-founder of Petonic Infotech, Yuvraj Bhardwaj shares his views saying ‘Today management consulting firms are embracing digital transformation, using data-driven approaches, and leveraging software solutions to drive growth and improve efficiency. One such software solution is the Software as a Service (SAAS) model, which is transforming the way consulting firms operate. SAAS software solutions are cloud-based platforms that provide users with access to powerful tools and applications via the Internet. In the management consulting industry, SAAS software is increasingly being used to streamline workflows, automate tedious tasks, and improve collaboration between consultants and clients. This has led to more efficient consulting services, increased productivity, and improved outcomes for businesses.’
In addition to these technological and business model innovations, the management consulting industry is also experiencing a shift in the types of services that are being offered. While traditional consulting services such as strategy development and operational improvement are still in demand, there is now a growing focus on new areas such as digital transformation, sustainability, and cyber security. As businesses grapple with these new challenges, they are turning to management consultants for help and advice. Overall, the innovations in management consulting are transforming the industry and creating new opportunities for both consultants and their clients.
With new technologies, business models, and services emerging, the industry is becoming more dynamic and responsive to the needs of the business community. As the business landscape continues to evolve, it is likely that we will see even more innovations in management consulting in the years to come.
Disclaimer
Views expressed above are the author’s own.
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The commercial real estate sector in North India is set to experience a massive boom in the coming years. The region has been witnessing a rise in investment inflows, a surge in construction activities, and an increase in the demand for commercial spaces.
These trends have propelled the growth of the real estate market in the region, and experts predict that the future of North Indian commercial real estate is positive. Demand for residential properties has surged due to increased urbanisation and rising household income. This rise is residential properties has parallelly boosted the demand for commercial real estate. The fact that India is among the top 10 price appreciating housing markets internationally is proof of it.
Factors such as increasing urbanization, the rise in disposable incomes, and the growth of the services sector are driving the growth of the real estate market in India. North India, which includes the states of Delhi, Haryana, Punjab, Rajasthan, Uttar Pradesh, and Uttarakhand, is a significant contributor to this growth.
The Indian government’s initiatives such as Make in India, Digital India, and Smart Cities have also been instrumental in driving the growth of the commercial real estate sector in North India. These initiatives have attracted both domestic and foreign investors to the region, resulting in increased investments in the construction of commercial real estate projects.Organised retail real estate stock is expected to increase by 28% to 82 million sq. ft. by 2023.
The commercial real estate sector of India is also witnessing a shift towards Grade A and Grade B office spaces. Grade A office spaces are those that are located in prime locations and are equipped with modern amenities, while Grade B office spaces are located in emerging business districts and offer moderate facilities. The demand for Grade A and Grade B office spaces has been increasing in North India, driven by the growth of the IT and ITeS sectors.
In recent years, North India has witnessed the emergence of several new business districts, such as Gurgaon, Noida, and Greater Noida. These districts are home to several IT and ITeS companies, as well as multinational corporations, and offer world-class office spaces. The demand for office spaces in these districts is expected to grow in the coming years, and experts predict that these districts will become major business hubs in North India.
Citing industry estimates, the organized retail sector in India is expected to grow at a CAGR of 25-30% over the next few years, driven by factors such as rising consumerism, the growth of the middle class, and the increase in organized retail formats. North India, which includes the national capital Delhi, is one of the major retail hubs in the country.
The growth of e-commerce has also had a significant impact on the retail real estate segment in North India. E-commerce companies such as Amazon and Flipkart have set up their warehouses and distribution centers in the region, resulting in increased demand for logistics and warehousing spaces. The growth of e-commerce has also led to the emergence of new retail formats such as hypermarkets, supermarkets, and convenience stores, which require large retail spaces.The hospitality real estate segment is another area that is witnessing significant growth in North India.
North India, which includes popular tourist destinations such as Agra, Jaipur, and Shimla, is a significant contributor to the growth of the hospitality industry in India.
The rise in foreign tourist arrivals has led to an increase in demand for hospitality real estate in North India.
In conclusion, the future for North Indian real estate market is growing at an accelerating rate, all thanks to the government’s initiatives and growing spending power of people.
Disclaimer
Views expressed above are the author’s own.
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For a long time, technology has had an undeniable impact on human culture and society. It has made many changes, like the development of man – a being that became smarter than ever before. Technology has been everywhere, providing us with new inventions to make life more enjoyable. Whether you live in a home or an apartment, the way we shelter ourselves has evolved and will continue to do so for years to come.
Smart homes are a fantastic concept of the future, but they’re not quite a reality yet. The real estate market is constantly evolving, so trust and relationships with current and potential customers are necessary at every stage.
Homebuyers in India have changed over the years, with millennials (those between the ages of 30 and 40 increasingly investing in property. These factors add to their desire for a home. They are aware that there are still risks but they want it now and want it all.
Despite all the efforts, there still seems to be a lack of trust in business. In real estate terms, we call it the trust deficit. The origin of distrust starts from the top which is your authorities. These authorities are constantly dealing with multiple layers & complex clearance mechanisms which result in unethical practices for forced approvals & clearance. These approvals cost builders a heavy sum to be paid, which then gets passed on to the buyer resulting in extended durations in EMIs as well as rent.
There are two major problems with the building industry: first, builders and contractors can easily sway politicians for their personal gain; second, building regulations are not always followed by those who have to abide by them.
There are many intermediaries that connect buyers and builders. At these intermediaries, customers often find one of their most trusted friends as they notice huge discrepancies between the realities of properties and what is presented there by these intermediaries. With a barrage of second-hand information copied and pasted all over the place, suppliers also ignore addressing real issues like a builder’s credibility, approval status, and ownership of the land title.
The collective growing distrust in the real estate sector is a reflection of how attractive it is to buy and sell, but also just as many swindles and misrepresentations are involved. This is a partnership that needs time to rebuild trust. For this to happen, all players in the ecosystem must work collaboratively.
And this is what online real estate platforms and apps that use futuristic tools like Artificial Intelligence, Augmented Reality, Virtual Reality, and Robotic Process Automation do. These innovative tools can help with all phases of a real estate transaction: from research to purchase to sale or rental. Whether you’re looking to buy, sell, or rent a home, these online platforms and apps can show you inventory verified by the developers themselves.
The technology involved in the real estate industry is quickly moving into every aspect of it. These tech innovations can now help consumers get the homes they want, quickly and easily.
Technology today provides transparency around supply and price through a real-time, third-party search of properties. Transparency makes the process more accurate and fair for both buyers and sellers. The platform provides instant live site visits and comprehensive customer service with a dedicated relationship manager as well as online transaction capability, so you can find your perfect home with ease.
In 2022, buyers can experience completely streamlined processes at their fingertips- from searching for verified listings to purchasing them easily. That’s because everything you do on the online platform is recorded in real-time with the listed property. This eliminates middlemen and costs, which results in an effortless and trustworthy buying process. Simply put, technology has revolutionized the home-buying process for every buyer out there, enabling them to purchase their dream home.
Disclaimer
Views expressed above are the author’s own.
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Companies across sectors are increasingly relying on independent talent to compete in the modern world. From plugging skills gaps to providing specialist expertise for distinct projects, drawing on flexible talent has a lot of advantages, enabling firms to operate in a much leaner way than they have in the past. Using flexible resources started in remote working and lower-skilled areas, but it is getting more and more common at all levels. However, as an increasing number of roles are filled by freelancers, this can bring challenges, in particular, the issue of managing blended permanent and freelance teams, and the turnover of short-term staff.
Permanent employees have their roots in the organisation, with their eyes on career progression and the long game. They have a deep understanding of how things work, processes and procedures, and where to find all the information they might need. Independent consultants are different. In most cases, they are coming in cold, but with a very specific focus and objective for their time in the organisation. Yet, despite these differences, it is vital that these two groups are able to work effectively with and alongside each other.
Here are a few ways you can help to integrate independent talent successfully into your organisation.
Recruit right
It can be tempting to rush through the recruitment process for independents because they won’t be with you for a long term. However, this approach is likely to make integration harder. While you might not have time to go through numerous interview and selection stages with independent consultants, it is still important that you hire for cultural fit as well as based on skills and experience. Face-to-face interviews – or at least video calls – are essential to get an idea of personality fit as well as asking talent for references from previous projects. Also, it is important to have clarity about what the project involves so that the consultants can ensure it is right for them, aligning expectations, deliverables, and timescales.
Onboarding
Independent consultants are great at hitting the ground running but need your help to do that effectively. A well-planned onboarding process makes a huge difference to the speed that an individual will reach peak productivity and performance, by minimising downtime and maximising engagement. All it takes is a bit of preparation, to make sure they can adjust as soon as they arrive on their first day. That means ensuring everything is organised in advance, from access to the building, and logins to all your systems, right through to the company and project background that they need to get started.
Facilitate collaboration
It isn’t uncommon for flexible talent to walk in on their first day, and for the rest of the team to not have the first idea who they are or why they are there. This immediately puts everyone on the back foot, makes collaboration more difficult, and shows a lack of respect for the consultants. They rely on others within the business to achieve their objectives, so relevant team members must be fully briefed on what their role is, and how they will be working together before an individual starts work. Arrange one-to-ones between the consultant and anyone they will be working with as early as possible.
Set clear deliverables and timelines – and catch up regularly
Independents want to prove themselves quickly and start delivering for the business. That means clear deliverables and timescales are critical from the word ‘go’, to be reassessed regularly against progress made. Regular catch-ups with senior managers or directors are also a good opportunity to ask the consultants for feedback on how things could be done better or differently to improve outcomes. You may need to do such catch-ups more frequently than with permanent employees at least, in the beginning, to ensure you are maximising the integration and performance. Remember, they are specialists and have worked on numerous similar projects elsewhere so they are likely to have plenty of valuable insights to share.
Involve them in the culture
They might not be permanent team members, but the more an independent feel part of the team, the better their work is likely to be. So, it makes sense to embrace them into the culture as much as possible. Invite them to team socials, involve them in company-wide communications and add them to the company intranet for the period that they’re working for you. It will only increase their engagement with and understanding of the business, and their ability to get the job done.
Plan for the future & transfer knowledge
Independent consultants are only with you for a definite period, usually working on highly important projects. Therefore, you must plan for when they leave so that all the knowledge doesn’t leave with them. For example, if they have been involved in planning a client strategy, ensure your team has everything they need to execute that strategy. Do they fully understand how to articulate it to the client and roll it out, or is more background or training required? What more can they do to ensure their handover is completed thoroughly?
In our experience, following these six principles ensures the clients get the most value out of the independent consultants and ensures it’s a good experience for both parties!
Disclaimer
Views expressed above are the author’s own.
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The adage, “what doesn’t kill you only makes you stronger”, perfectly describes the journey of Indian real estate over a period of more than a decade. The sector has registered robust growth despite headwinds including the global financial crisis of 2008, demonetisation, and the Covid-19 pandemic, among others. As the global economy is gripped into recession fears again, India is better positioned to lead the world towards growth, and the Indian real estate sector will contribute to this growth from the front.
The crown jewel of the Indian real estate sector, the commercial real estate segment, has been leading the sector and contributing actively to nation-building. While the sector witnessed sluggishness due to the pandemic over the last three years, the return to the office, mushrooming of shared workspaces, and entry of organized players in tier-2 cities and beyond are driving the demand for quality office spaces across the country. These factors will continue to contribute towards expanding the sector in the coming years while enabling the industry to remain healthy during the crisis.
International property consultants state that gross leasing volume (GLV) for the period January-September 2022 is higher by 88% and 13% as against the same periods in 2021 and 2020, indicative of the resilience of the Indian office markets. The net absorption for the first nine months of 2022 (Jan-Sep 2022) is at a three-year high of 30.3 million square feet, backed by strong supply completions with healthy pre-commitments. Markets such as Delhi NCR and Bengaluru emerged as the two biggest office markets during this period.
And while the market is posting healthy growth overall, the occupier profile saw a shuffle. Over the past few years, the share of sectors other than IT and ITeS, which includes start-ups and small businesses, in office space absorption have been increasing. Reports suggest that the share of the IT/ITeS segment fell from 33% to 27% in the third quarter of 2022 while the banking and financial services sector posted impressive gains with its share rising to 16% from 10% during the same period. This was followed by manufacturing and telecom, healthcare, and other real estate segments holding market shares between 14% and 16%. The shared workspaces segment is scripting new trajectories. However, at the same time, the IT / ITeS sector, India’s leading office demand driver has seen absorption declining from 49 per cent in H1 2021 to 36 per cent in H2 2022, which is indicative of an industry-wide trend.
There are umpteen reasons why the commercial real estate segment emerges victorious during challenging times and its ability to reinvent itself over the years is a key highlight of its journey. By remaining agile in its methods and offering stronger investor and customer propositions, the sector continues to be an investor favourite, who bet big on its ability to create long-term value. From introducing new and effective construction techniques to bringing down the cost of construction to enabling retail investors to participate through fractional ownership and real estate investment trusts, the commercial real estate segment has continued to outperform. Furthermore, the shift of India’s demography from the lower middle class to the middle class which is being led by the large domestic and international technology and consumer durable companies rests on the availability of Grade A commercial spaces
As the country gets back to normalcy with trade and commerce picking up, employees returning to the office and the rapid emergence of new-age start-ups, commercial real estate is most likely to benefit from these developments and create numerous opportunities for landlords, developers, service providers, and the ecosystem players. It is also setting benchmarks globally in developing financially sound properties, incorporating aspects of sustainability and technology in construction to set the path for its long-term growth.
Disclaimer
Views expressed above are the author’s own.
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Real estate has always been and would remain the most preferred and trusted investment avenue for investors seeking long-term avenues to park their money. According to a recent survey, 50% of investors prefer real estate investment. This sentiment is majorly driven due to this asset class’s stability and sustainable growth over the years.
While real estate can be broadly classified into 4 types, one of the highly restricted yet promising segments, Commercial Real Estate (CRE) is now democratized through various investment models. Here are the key models and factors to remember before you set foot.
Fractional ownership – It can be termed as a formal setup wherein groups of investors pool funds to purchase a property. They share passive ownership of a high-value asset. This approach reduces the financial burden on a single investor to own a property and allows the investor to earn returns on the investment. This investment can also be made through a mediating platform that carries out all the due diligence and scouting A-grade properties, minimizing the overall risks associated and giving a clearer picture of the expected returns.
The investment made through fractional ownership is directly under the investor’s control and generally yields higher returns.
REITs – They can be termed as mutual funds for real estate. In REITs, an investor can invest a fixed sum which will then be proportionately allocated amongst various prefixed properties. The essential advantage of this model is that it is available for a few thousand, making it affordable for most investors. However, one crucial factor to remember is that the investor has no control over the investment, which could remain idle due to various factors that would result in low returns.
After understanding the investment models, it is also essential to look at the different factors while venturing into any new asset class.
Learn to think like a professional if you want to succeed in commercial real estate. Take note that commercial and residential property is valued differently. Keep in mind that leases for commercial property are generally longer than those for single-family homes, resulting in greater cash flow. Keeping the primary market and industry research handy could significantly aid in making the optimal decision.
The performance of your asset is significantly influenced by its location. Both residential and commercial real estate are subject to this.
When assessing a potential commercial real estate investment, numerous location-related factors, such as asset access, zoning and other location-related difficulties, must be taken into account.
The number of amenities, elevators, lobbies, ceiling heights and similar features can describe an asset’s quality.
Developers use classes like A, B+, or B to describe the asset. Returns on investment are better when your asset quality is top grade.
Your return will be more consistent the longer your tenant stays. That is dependent upon the area’s vacancy rate. Expressed as a percentage, vacancy rate compares the amount of time a property could be rented to the amount of time a property was actually rented, generally over one year. Tenants are less inclined to look for other rental properties in areas with vacancy rates of less than 4-5 per cent. Investing in a property in this location will also guarantee consistent rents and progressive capital growth.
CRE lease structures differ from residential lease structures. They can be set up with rent hikes every four years and a structure of 4+4+4 years (12 years). While the landlord cannot demand that the tenant leaves during the lease term, they are free to do so at any moment. In addition, there will be a lock-in period. The investor obviously benefits more from a more extended lock-in period.
Building your CRE portfolio? Remember these tips
- Real estate investment is only profitable in the long term
- Customise your investment based on the market, as every need has its unique proposition
- Give serious thought to the expected IRR claimed to you, including the vacancy and market rental rate
Finally, when choosing to invest in CRE, remember that buying commercial real estate only pays off in the long run, and it’s always a good idea to diversify your portfolio and invest in multiple assets. What may apply to the residential real estate market might not apply to commercial real estate.
Disclaimer
Views expressed above are the author’s own.
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When it comes to real estate investment, there are a number of different options available. However, commercial real estate investment could be a better alternative over other property options for a number of reasons.
For one, commercial real estate generally has a higher return on investment than other types of property, such as residential. This is because commercial real estate is typically leased out at a higher rate than residential property, resulting in more income for the investor.
Additionally, commercial real estate is often less volatile than other types of property, meaning it is less likely to experience sudden changes in value. This makes it a more stable investment, which is often more appealing to investors. Finally, commercial real estate can be a more hands-off investment than other types of property, as it is often managed by professional property managers. This can save investors time and energy, making it a more convenient investment.
The concept of a mall near housing complexes is fast catching up in the country’s urban centres. This is because it offers convenience to residents who do not have to travel far to shop for their daily needs. In addition, malls near housing complexes usually have a good mix of retail outlets, which makes it a one-stop destination for residents.
Overall, commercial real estate investment could be a more attractive option for those looking to invest in property. With its potential for high appreciation and low volatility, commercial real estate could be a wise choice for those looking to build their portfolio.
Why Commercial Real Estate?
As we advance into the future, the outlook for the real estate sector looks increasingly bright. The industry is expected to bring in more promising results, thanks to continued growth and development.
There are a number of factors that are contributing to this positive outlook. Firstly, the economy is improving, which is resulting in more people having the disposable income necessary to invest in property. Secondly, the population is continuing to grow, which is resulting in an increased demand for housing.
Thirdly, the government is taking steps to support the real estate industry, by enacting policies that encourage development and investment. fourthly, technological advancements are making it easier for people to buy and sell property, and to find the perfect home or investment.
Investing in commercial properties, like shops, can be a great way to generate higher returns on investment (ROI). Commercial properties tend to appreciate at a higher rate than residential properties, and they can also provide a steadier stream of rental income.
Of course, there are also some risks associated with commercial investing, such as higher vacancy rates and more complex management requirements. But for investors who are willing to do their homework, commercial properties can be a great way to build long-term wealth.
Typically, a residential property could give a return between 1.5 per cent and 2.5 per cent per annum. This is because the value of a residential property appreciates at a slower rate than that of a commercial property. Shops in malls can give up to 6-8 per cent annually, as they are able to command a higher rental value.
The entry cost for opening a convenience store is relatively low.
Depending on your budget, you can decide the size and location of the shop. Convenience stores are typically small in size and located in high traffic areas. This makes them easy to access for customers and easy to manage for owners.
All of these factors are coming together to create a bright future for the real estate industry and hence We can expect to see more growth and development in the years to come, bringing greater prosperity to those involved in the sector.
What Investors Should Keep in Mind?
Before investing in a property, it is crucial to study all the aspects that could affect the profitability of the investment. This includes the cost of the property, taxation, local zoning laws, and bylaws for renting properties.
By understanding all of these factors, investors can make informed decisions about whether or not a particular property is a good investment. This due diligence will help them to determine whether the investment is a good fit for their needs and goals.
By taking the time to understand all of the details involved, investors can make informed decisions that will help them to achieve their financial objectives.
It is also crucial to have a realistic understanding of the earning potential of the property. This includes considering the operating expenses, such as taxes, insurance, and repairs. By understanding the potential income and expenses of the property, investors can make informed decisions about whether or not to rent the property.
There are many reasons why commercial real estate investment is seen as the most advantageous investment option. One of the key reasons is the potential for high returns. Commercial real estate typically generates higher returns than other types of investments, such as stocks and bonds.
Another key reason is the stability of commercial real estate. Even during economic downturns, commercial real estate values tend to hold up better than other investments. This stability makes commercial real estate a good long-term investment.
Finally, commercial real estate provides investors with a tangible asset. This can be beneficial in terms of both security and diversification. When you invest in commercial real estate, you are investing in a physical property that you can see and touch. This can provide a level of security and peace of mind that other types of investments cannot match.
Disclaimer
Views expressed above are the author’s own.
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With the long-term closure of offices and working from home being the new way, the requirement for new office spaces has been adversely impacted during the pandemic. However, with the workforce returning and the great resignation coming to an end, commercial real estate is coming back strong as ever. Several MNCs and large enterprises have now reopened their offices or implemented a back-to-office programme, which is making this sector one of the fastest growing real estate segments. According to the latest report by Knight Frank India, the commercial real estate sector will have stable and sustainable growth in 2022. Therefore, with positive sentiments in the markets, commercial real estate is gaining prominence among large corporations.
Moreover, the commercial real estate market in India is also surging for several other reasons, such as the advent of digitalization, soaring tenant confidence, and the loosening of COVID protocols. Furthermore, overall economic growth, transparency, and competency have influenced developers and tenants to move toward commercial real estate. But these are not the only factors driving its growth across the whole landscape. Let us discuss the aspects that are stirring the advancement of commercial real estate.
Factors pushing the commercial real estate sector toward a rise
As discussed, the soaring economic activity and the returning workforce to offices have elevated the demand for commercial real estate. However, the growing importance of co-working spaces is also one of the factors that is gaining relevance. Another reason for the surge in interest is innovative office space concepts, business-friendly initiatives, and top-notch amenities for tenants.
Vacancies in Grade A offices are now back to being stable as compared to the last two years due to the withdrawal of pandemic-related curbs. According to JLL, the Grade A office market is likely to touch 1.2 billion square feet by 2030, owing to surging demand.
The lease agreements of commercial real estate properties are long-term, and every three years there is a 15% escalation in the property rental, making it lucrative for developers. This has fuelled the development of several other office space projects which are under construction and will be operational soon. For example, Tata Realty and Infrastructure Limited (TRIL) is constructing grade A+ office space for corporate leasing in Gurugram sector 59, which is 550,000 sq. ft and will be available by December 2026. Therefore, we can conclude that attractive appreciation potential and the tangible nature of the properties are fueling the growth of this industry.
Market trends
The Indian commercial real estate sector is facing dramatic changes in how buildings will be used, appraised, and valued in the present and future as a result of a pandemic-driven course correction. Several trends have emerged as a result of the tremendous bounce back of this sector. Leasing activity is intensifying because businesses are updating their real estate investment holdings to mitigate pandemic effects. Similarly, the hybrid working model facilitated the necessity for leasing office spaces that are dynamic and have smart working spaces, supporting the growth of this sector.
The office sector in India is having a steady recovery as leasing activity grew 97% year over year to touch 11.4 million square feet, according to a report by CBRE, South Asia. Bangalore, Chennai, and Delhi-NCR dominated this growth in leasing, with technology driving a leasing share of 34%, followed by BFSI firms (17%), flexible space operators (13%), E&M (12%), and consulting and analytics (11%). Giant businesses are also active in leasing office space rather than owning it. For example, Amazon has leased 700,000 square feet of office space under the project “Downtown Gurgaon.” Furthermore, South Korean electronics giant Samsung has taken 357,000 square feet in Noida, where it will pay Rs 278 crore in rent over ten years, or about Rs 2 crore per month.
A joint report by Colliers and Qdesq forecasts that the adoption of office space will exceed 60 million square feet in metro and non-metro cities by 2023. Large businesses in IT, business process management, e-commerce, and consulting will be the primary occupants. Furthermore, global firms are showing interest in Indian commercial real estate for expanding their operations due to reduced vacancy, prime locations, exceptional amenities, and fair leasing prices.
Organisations are also preferring managed office space in recent times. Unlike owning an office and bearing additional and uncontrollable expenses, managed office spaces provide dynamic pricing models that are cost-effective. Moreover, the scalability options are readily available and help with any sort of expansion without any hassle, making it a preferable option. Furthermore, by leasing these office spaces, the firms get basic amenities and other services available in a shared space under a single subscription.
Commercial real estate will grow sharply due to Hub and Space working models, a focus on technological advancements, growth in the economy; and large-scale institutional investment. This industry will act as a supporting pillar for the whole real estate economy and will aid it through the recovery process. Furthermore, India is becoming a market for global shared-service firms to increase their footprints in order to expand operations. Even though construction costs are expected to rise, they will only benefit the existing assets in a lucrative manner and pave the way for new development.
Despite the economic concerns, optimism surrounds the whole commercial real estate industry due to the myriad benefits for all the participants. CREs are now targeting Tier-II and Tier-III cities as they are rapidly urbanising and businesses are often shifting to these cities to save on operational costs. Furthermore, the inclusion of New Age technology such as sensor-activated disinfectants, retina scanners for entry, digitalized ventilation systems, and more is increasing the affluence of commercial real estate.
Disclaimer
Views expressed above are the author’s own.
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