Real estate business runs on demand and supply of spaces, wherein the commercial real estate sector either survive on appreciation or on rental yields. Investors should smartly buy over-rented assets at a developing marketplace because, the lower the market rate, the safer the investment. To earn a maximum rental income by leasing out a commercial property, one should choose the right place with a perfect social infrastructure to invest in. A wise investor would always survey the property before buying it from a developer and foresee the productivity of the investment. Vetting the quality of the property, certifications and ratings of the building like A, B, B+ is paramount. Nicer looking lobbies, more elevators, higher ceiling heights and better views can attract a greater number of tenants.
For the tenants, it is equally important to determine the need to occupy the property on lease. Start-up companies can go for hot-desking or use co-working office spaces instead of risking 30% of their annual income by leasing a space on their own.
Although leasing a commercial property is an optimum decision in the real estate industry, the investors should scrutinize the following aspects before leasing out their commercial property:
Finding good tenants
Post the decision of leasing out your commercial property, you usually start hunting for suitable tenants. But this process is time-consuming and sometimes expensive if done independently. It is always advisable to consult a professional broker or an advisory for shortlisting the best corporate tenants and multinational companies for leasing out your properties.
Know your tenant
As Sir Harvey Firestone suggests- fundamental honesty is the keystone of business and trusting your tenant neither incurs loss nor profit unless you appear negligent. Looking at their previous credit status, financial condition and previous records before trusting them as a tenant is a prudent practice by the lessee. Good tenants are on-time rent payers and they stay longer thereby increasing the value of your property.
Be clear and concise
For maintaining a healthy relationship between the lessee and the tenant, both should be concise with their demands. From regulating the size of the property to knowing the market value, the dealers should be accurately informed by the brokers. This includes the lock-in period, lease termination, rent clauses and escalation and scalability of the deal.
With regulating the need, the tenants should also calculate the rent per square feet, which might exclude maintenance, parking utility, insurance, amenities and interior fitments. In India, designing a commercial office space costs around INR 800- 1000 per square feet. Experts suggest tenants to stay within a budget that suits them financially. Let’s now evaluate some crucial points to be considered by tenants before occupying a rented space for the commercial purpose.
Before relocating the office on a rented space, the tenant should always take the following points into consideration:
1. Commute feasibility- Neither the employees nor the clients should get hassled with the inconvenient commute to your office. It is always recommended to choose an office location near any of the railway stations and metro stations.
2. Vicinity- Analyzing the nearby facilitative places like hotels, pubs, gyms, food parlors at the office location, can impress both the employees and the clients. This also includes the security the rented property holds that the tenant is willing to occupy.
3. Modification- The tenants should always scrutinize is the place calling for modification and its cost. Renovate your place according to your business while keeping up with the available budget.
4. Examine local taxes and infrastructure- Choose the office location that is lively and amenity-rich with internet access, garbage pickup, roads, electricity connection and natural gas.
Scope for the future growth
The new office location should offer positive signs of prosperity to your business. The decision of relocating the office space should appeal to the business, right from avoiding wastage of money to attracting new clients.
Lease format in India
The Indian commercial real estate sector practices the format of 3+3+3 or 5+4 – total 9 years lease period for any commercial property. The lock-in period does not allow the tenants to vacate the space for 3 years. The longer the lock-in period, the better the benefits of the investors, as the rent escalates by 15% every 3 years of the lease period.
The commercial real estate segment, especially that deals with office spaces, mainly follows the following lease types in India:
Net Lease is when the tenants are liable to pay rent + property tax
Double net lease is when tenants pay rent + property tax +insurance
Triple net lease makes the tenants responsible to pay rent + property tax +insurance
In gross lease, the tenant with other tenants, mostly in the multi-tenant buildings pays common rent that includes lobby, restrooms, elevators, stairwells and hallways utilization. The tenants pay rents that include TDS and service tax.
Lease agreement and legal paperwork
After complying to the lease standards, the agreement papers should be namely cleared and registered with the respective State Government. Being concise with the termination, renewal clauses and quantum deposit, the lease agreement should be signed by both, the lessee and the tenant.
The process does not end here as your broker will be answerable to ad-hoc queries of the tenants and the owners, for they will keep an eye on the property and on-time rent transactions.
The expanding commercial real estate market is out-turn of raring investors in India. The investors with a savvy attitude prefer buying good commercial spaces and leasing them out later. A perfect balance between market knowledge and rental trends, allows investors to leverage the perpetual cash flow in their business.