PE Still Voting for Commercial Real Estate

Various Government-driven policies including ease of doing business in India are attracting both Indian and global companies, squarely benefiting the commercial real estate. Big-bang boosters like the start-up revolution and the Make in India and Smart Cities missions have created a very lucrative environment for businesses to work and expand in India. The demand for high-quality office spaces in India has never been higher. The residential sector, on the other hand, continues to struggle with problems that the commercial segment does not share. Moreover, high-quality office space developers largely deal with prosperous multi-nationals who, apart from having deep pockets, have zero tolerance for opacity. They are also very exacting in their requirements, which naturally leads to the highest-possible product quality. Another advantage that the commercial property sector enjoys is that office properties are primarily leased out rather than sold, which leaves far less scope for dodgy activities. The residential sector is primarily driven by sales. Compared to the lease yields for office spaces at 12-14per cent per annum, rental yields for housing are negligible 2.5-3.5per cent per annum in a best-case scenario.