Real estate investing I Commercial real estate weathered Covid-19 well. Is it good time to invest?

Commercial real estate survived Covid-19 well. Is It A Good Time To Invest? | Photo credit: Thinkstock

Investing in real estate is serious business as the investments associated with it have a high priority. Old school Indian investors still consider real estate investments to be on par with physical gold because of the perceived tangibility of these two assets.

However, the real estate sector for residential property has created a lot of wealth for investors, especially after the 1991 reforms, but has been in difficult waters for several years.

Commercial real estate, on the other hand, has been on an upward trend for several years. The sector even managed to weather the pandemic with minor rental income losses or major asset sales. The World Bank expects the sector in the Asia-Pacific region to grow at an annual growth rate of 7.4%. The sector is expected to emerge soon from the Covid-19 downturn and is a good investment opportunity over the long term.

Commercial real estate consists of offices, warehouses, data centers. Offices are one of the biggest drivers for investments and transactions in this segment. Grade A officers are the highest quality officers in this segment and are rated based on their location and facilities. The segment has attracted $ 15.4 billion in equity over the past decade.

However, the sector has faced headwinds due to the total cessation of office and work from home during the pandemic. According to a report by Knight Frank, deals in this area fell 35% year-over-year to a six-year low of 39.4 million m² in 2020, while new deals fell 42% year-on-year.

However, the rapid introduction of vaccines and a decline in cases resulted in a faster-than-expected recovery as offices gradually opened. Transaction volume in eight cities including Mumbai, NCR, Bengaluru, Pune, Chennai, Hyderabad, Kolkata and Ahmedabad increased 271% quarter over quarter in the fourth quarter of 2020 and reached an impressive 115% quarter over COVID-19 levels, writes Rajani Sinha, Knight Frank’s chief economist, in the report.

Despite the pandemic, the office segment has been a real estate favorite

How to invest

Investing in the commercial real estate sector runs into billions of rupees, making Real Estate Investment Trusts (REITS) the only possible investment option.

REITs are launch vehicles that are controlled by well-regulated trusts and have a variety of stable income-generating properties. A REIT fund enables an investor to hold units of pooled commercial real estate without being required to own real estate.

BofA’s Sunil Khaitan told ET Now that REITs are a very stable source of income for investors.

“They have provided global long-only funds and domestic HNIs with an opportunity to gain access to investments in high quality commercial real estate that generate a steady stream of income. Fundraising includes regulatory capital. Besides, part of the capital is also used for deleveraging, and then above all comes the part of growth capital, ”he added.

Two successful listings, Embassy Office Parks and Mindspace REITs, have recently been listed on the Indian market. The most recent listing of the Brookfield REIT was subscribed eight times, showing strong investor interest in the segment.