When it comes to buying your own office space, there is no set standard. Each business has its own specific needs and hence demands a unique commercial space. You will need to figure out how much space you want. Are you planning to expand in the future? How many employees do you have? What domain does your industry fall into?
Buying commercial real estate is a complex process and you need to be thorough. Even when buying an office space, you must be aware of the various options available while buying commercial properties.
Amidst the pandemic also, commercial real estate has quickly recovered in India. While increasing growth rates in 2021, the sector remained stable throughout 2020. Investor confidence has been sparked by the improving attitude, and the trend is anticipated to continue in 2022.
What propelled business investment following COVID-19?
- IT and ITeS sectors have performed well in several quarters, and hiring has increased.
- The economy is quickly recovering and many businesses constructing a new offices.
- Corporations are making proactive judgments about office space while pursuing long-term expansion objectives.
- Top cities in India are seeing rapid growth in co-working spaces.
How Do You Buy a Commercial Property in India?
Successful commercial investment requires a good grasp of the real estate market, current trends, understanding of potential risks and financial ability.
Commercial investing is different from real estate investing. While real estate investing is secure, commercial investing comes with potential risks. But commercial investment has a high return on investment when compared to residential properties.
Things which you need to consider include:
- Is this area accessible via a different mode of transport?
- Is this location close to major commercial hubs?
- Which are the major industries surrounding the location?
- What is its growth potential?
- What is the demand-supply gap?
- Does your location have good infrastructure?
Is it Better to Buy or Lease Your Office Space?
You planning to lease or buy your office space decides your major financial investment. There are pros and cons to each. Let’s discuss them in detail.
Pros of Leasing Your Office Space
If you are still not stable financially or don’t see yourself living in the same place for a longer period of time, leasing is the best option for you.
- There is no upfront capital investment, since no downpayment. When you purchase an office space, you need to put down some money in form of a downpayment (Typically – 10% to 30%). But when you lease you only need to deposit a small amount of money (Typically one month of rent) and if you use one, a nominal brokerage fee. This allows you to use your money for other important investments or expansion of your company.
- When you lease a commercial property, there are provisions to deduct the amount from tax payments.
- The landlord is responsible for all the maintenance a repairing costs. But it depends on how you negotiate the lease terms. Depending on the terms, a landlord may agree to pay for the maintenance and repairs of the office space. You will be responsible for keeping the interior clean and all the necessary appliances in good condition. But make sure your lease specifically mentions who is responsible for what.
- Leasing will give you the opportunity to occupy a high-end space for less amount of money. Buying an office in a prime location could cost you a fortune but leasing the same space for less amount of money.
Pros of Buying Your Office Space
If your condition is relevant to the following points, then you should consider buying the property.
- Maybe you want to renovate the whole property or increase your business to a large scale. If you rent your property, each time you need to make changes you need to take permission from your landlord. But if you own the property, there won’t be anyone looking over your shoulders.
- A lease will cost you less money, but in the long run, buying office space will cost you less money. Because in addition to maintaining your property they will try to make a profit out of the deal.
- For some retail outlets, location becomes a top priority and you don’t wish to lose it to rising rents. If you have a winning business model, you don’t want to lose the property just because your landlord wants to use the space for something else. If you own the property, you don’t need to worry about such incidents.
- If your office is located in an area of appreciating land values, you should consider buying the property and therefore benefit from the property if you ever sell. This requires some real estate knowledge since you need to predict the upcoming trend while making a purchase
Things to Consider While Buying an Office Space
Buying a commercial office space involves a lot of risks and high investment. You cannot accurately predict the future but can make few assumptions based on past records and current market trends. Each risk must be carefully analyzed along with the solution. No factor should be ignored thinking that it will never affect your business. Here are some of the factors you should consider while buying your first commercial office space.
Location – A perfect location today could turn into an unwanted destination tomorrow. Make sure the location you choose in not under any commercial project development program. At the same time, you need to make sure your business is accessible through various modes of transport for consumers/suppliers. A poorly connected business will die a slow death. The location you choose must have good water, electricity and an Internet connection.
Budget – Any real estate investments involve a huge budget and therefore require full-proof planning. Do not begin your commercial exploration before you get your budget right, the budget you have in your hand decides the kind of property you will be able to buy. It is critical for the investor to figure out the amount you need to invest along with other business transactions. If you do not have enough amount you could lease the property with enough downpayment and pay the mortgage for the remaining amount.
The physical condition of the space – How and for what purpose was this space used before? This will give you a brief understanding of the condition of the property and the amount of repair it needs. It also helps you finalize the budget based on the condition and maintenance required. This would also help you understand the resale value in the future.
Be Flexible – When viewing a commercial property, don’t just think about short-term requirements, look for a property that is flexible. It is given that you would definitely try to expand your business in the coming years, so make sure you choose a property that can be easily modified as per your needs.
Market Rent vs. in-place rent – This is a slightly advanced concept where an investor gauges the risk of the property. You should compare the rent of the marketplace in the same area as your preferred location. If the price is more or less, you need to identify the factors which cause this difference. For example – If you have two buildings with similar structure and amenities in the same location and one is 10% costlier than others, it makes no sense to buy the costlier ones. You will just end up buying an overrated asset above the market price.
Availability of Amenities – commercial office space is not only your workplace but also represents your brand. Hence you need to make sure that your amenities fit perfectly with your needs. Things like parking space, lift, water facility, electricity, the internet must also be carefully looked before financing your office. These services not only help your business run smoothly but also determines the resale value of the property.
Future opportunities – A commercial space should be in case of expansion fits your requirements. Additionally, if your business is not received well, you should be able to sell the property and make sure you have enough buyers.
Know Your Neighborhood – Infrastructure development undertaken by the government impacts both positively and negatively. Also, make sure your area is not susceptible to natural calamities like floods, drought, snowstorms, etc.
Get Your Property Surveyed – It is important that you carry a full professional survey before you handout your deposit. Hire a professional inspector since a basic survey is not enough when you are pouring a huge amount of money in buying the space. Not only for commercial investment, but a survey is also important even if you are buying a residential property. Survey help you identify any repair or maintenance job required.
Subletting The premises – Some business buys large office space just in case they decide to expand in the future. If your current office space is too large, you can sublet some of the space. This will ensure that you have a regular cash flow and maintenance of the property. But this is not possible if you are leasing the property. You may need to check with your lender first and read the documents carefully.
Read Your Agreement Carefully – If you are planning for expansion or relocation, you don’t want to get locked in the same property that cannot support it. Before you sign on any documents, please read the terms and conditions carefully. Do not hesitate to ask any questions or doubts. A simple clause can cost you a lot if not handled properly.
Stick to your List – It is very easy to get swayed by luxurious properties and amenities when hunting an office space. Some compromises are inevitable but do not divert too much from your original expectation and budget category. Keep a list of things based on your priority and needs. If you find yourself in a position of overspending, take a look at your list and check whether your budget allows space for these changes.
Negotiate – When you find your perfect space, it is easy to accept the first offer in fear of losing it. But you should always negotiate your terms before you buy. It may sound difficult at that moment but can save you a lot in the long run.
Investing in real estate is one of the best and important decisions you will ever make. The process is both complex and enticing. Make sure you don’t get overwhelmed and end up making any wrong decisions.
With the right amount of due diligence and research, investing in commercial real estate could become a wise decision. The points mentioned above covers all the aspects you need to consider before finalizing your decision.
If you are new to all these processes, it is advisable to surround yourself with experts and experienced. If you want some additional information about buying commercial properties, our experts at Goel Ganga Developments are eager to help.