A pre-leased or pre-rented commercial property is one which has already been leased to a tenant and is sold in the market thereafter. The lease gets transferred to the new owner along with the transfer of property rights. Today, pre-leased commercial properties have become a compelling investment choice for investors.
Investing in pre-leased properties, especially in areas such as Noida, Gurgaon, and the peripheral regions of Delhi, is an attractive proposition for serial investors. It has several benefits attached to it.
To begin with, pre-leased properties provide a settled return on investment (ROI) as compared to other investment options such as bonds and fixed deposits. However, the rate of capital appreciation over a given period of time depends on the location of the project and the development taking place in the vicinity. On the basis of these factors and long-term viability of the project, returns can vary between nine percent and 12 percent.
The owner of a pre-leased property also receives a pre-settled rental income in addition to capital gain on investment. The appreciation in rentals is close to 5-6 percent every three years and the owners get a vanity of good brands as tenants. In larger cities such as Gurgaon, Bangalore, and Mumbai where the capital value is higher than other micro-markets, buying a leased office space provides a wide variety of investment opportunities to build a nifty business portfolio. All these cities see a diversified tenant mix from the IT/ITES, BFSI, Pharma, Manufacturing, and E-commerce sectors that offer balance and flexibility to the owner portfolio in terms of tenant profile.
At the time of exit, the owner of the property receives equity value, along with capital appreciation gained on the escalated rent. Investors can earn decent returns, ranging from around 16-20 percent per annum from pre-rented commercial properties at the time of exit. These can be further strengthened if a portion of asset purchases is arranged through a combination of leverages, i.e. from banks, financial institutions, and the owner’s equity investment. Currently, there are a large number of pre-leased properties available for sale. In India, we have around 550 million sq ft Grade A office supply and more than 110 million sq ft of Grade A warehousing stock across the top cities. The investors can constantly search for pre-leased assets that have a broad potential for capital appreciation.
In a scenario where people are constantly looking for tangible and safer investment solutions, pre-leased commercial properties are fast-emerging as a trend. The investors can acquire parts of large commercial areas in malls, especially in food courts and cinema complexes. The rent coming from such properties is divided among investors as per the investment made. This trend is a golden opportunity for small investors, who have limited funds. It is also good for investors who do not want to park a large sum at one place. Going forward, the demand for additional pre-leased properties from different sectors is bound to increase with positive macroeconomic variables along with positive regulatory measures. All these will have a positive effect on pre-leased CRE valuations in the near future.
Source : 99 Acres