Commercial real estate is a collection of all the properties that are purely used for business purposes such as office space, retail space, shopping complexes, and industrial properties. These properties come in various sizes and shapes such as offices, warehouses, industrial floors, parking lots, shops, etc. which are occupied by various small and big businesses.

Whereas properties that are purely used for living are called residential properties. These are properties such as flats, apartments, independent homes, penthouses, and villas. etc are created solely to live and rented out to the tenant typically family or friends living together.

In this blog, we will see why commercial real estate is better for investing

Higher rental income

Commercial real estate has better rental yield when compared with residential real estate of the same size because it can acquire different tenants and generate more rental yield in the same property. Also in commercial real estate properties, the lease terms are often ranged between a minimum of 3-10 years. whereas, in residential real estate, the rental yield is less, and because of the shorter lease term, the property can be vacant for the long term. Also, demand fluctuation, less stability, and more frequent turnovers of the tents make it less suitable to invest and generate lesser rental yield as compared to commercial real estate.

Risk and return

Commercial real estate is less risky and has a high yield because of a strong lease term for a longer period which is more than 5 years in the general case. Apart from it, commercial real estate provides strong rental income due to its presence in business-friendly locations. Whereas residential real estate is generally highly risky because of the unstable cash flow of tenants, crime rate in the locality, and other nearby amenities lead to a higher vacancy which makes it quite risky for the investment.

Market dynamics

Commercial real estate is heavily influenced by economic developments, consumer spending, and business and corporate expansion. Properties with prime locations, and high footfall command higher prices in the commercial segment in real estate. Where residential properties like demographic shifts, population growth, and affordability increase the demand for residential properties.

Portfolio diversification

Commercial real estate provides diversification and stability which could avoid the risk in the long term by investing in office, retail, and mixed space. Also, geographic diversification can also be helpful in commercial real estate through which results of new upcoming markets can be reaped while residential real estate has less diversified and can be riskier to invest in.

Capital Appreciation

Commercial real estate demand increase with the location of space in a prime locality, accessibility, and strong business activity in and around the area which increases business activity, and hence the price of commercial real estate increases which gives investors good appreciation for the amount they have invested in purchasing the property. Where in residential real estate the desirability of living in a posh society will always be in demand and the location of society near highways, expressways, or metro will always keep on increasing hence the capital appreciation in this society will be more as compared to other residential projects.

CONCLUSION

Commercial real estate is feasible to invest in because of higher rental yield, greater capital appreciation, more portfolio diversification, changing market dynamics, market volatility, and risky environment in all these things commercial real estate is a valid and best choice to invest as compared to residential real estate.

In case you want to make any investment in commercial real estate you can contact our team at 7053707070 which are experienced professionals having more than 12+ years of experience in commercial real estate in Noida.