Investors in real estate have evolved along with the industry and are now more open towards considering new investment avenues. This is but a growing trend with several new segments of the market opening up and heady gains to be made in the future.
The residential housing segment is no longer yielding the return on investment as it did a few years ago and this compelled investors to look for other avenues of investment, preferably in commercial properties. This includes warehouses, co- working space and also student housing and they are happy with the returns they are getting.
Why Co-Working is a big draw now
Money is also being put in small offices and investors are also buying or renting huge places and handing them over to those who are working with co- working spaces. Here is a brief overview:
Co- Working spaces are most likely to reach 7 to 9 million sq feet by 2020 and there is huge scope for such flexible work spaces in India. The concept involves professionals and large scale businesses who might be traveling or do not have the need for a fixed workplace, renting one only when they require. This greatly fosters fresh thinking and help cuts down extra costs that goes into the maintenance of a workspace. This has greatly benefitted the start ups who can bypass the costs of rent of a traditional office space and developers are now concentrating on developing their own co working spaces and office spaces as well. The number of such spaces has grown exponentially in the Delhi NCR, Bangalore and Mumbai.
Other investment options- Warehousing
Investment in warehouses is another option that many are considering and they accounted for 26% of the total private equity during 2014 and 2018 with over Rs 22,100 crore being invested in this segment and these are just the numbers invested by the major conglomerates. Many small investors had also done the same. Greenfield projects had also accounted for about 67% of the total investment. Warehouses are high rent yielding commercial assets and with the residential segment not yielding the desired return, warehouses were heavily invested in and according to the industry experts, warehouse assets are offering a greater cap rate of 150 to 200 bps greater than other commercial offerings. Warehouses are not just a storage space anymore. They are now taking on a new meaning in the light of the how logistics supply chain are going through a transformation globally. They are now a space to provide value added services like packaging, small scale manufacturing, cross docking and automation among others.
Student Housing is another lucrative future investment
Student housing is the next channel where one can think of investing in and it does yield lucrative returns. There are a number of startups who are working in this segment like Your Space, Oxford Caps, Stanza Living and others. It is estimated that student housing has the potential to yield more than 12% returns as compared to the core commercial sector which has returns of only about 7% to 10%. The sector is currently worth Rs 1, 267 and currently involves 84, 500 beds which is estimated to grow to 1,60,000 beds by 2020. With these players coming in, the segment that was as of yet an unorganized market, is slowly becoming an organized one. The student housings are fitted with all kinds of amenities like food delivery, security, gym, leisure activities, Wi-Fi, laundry and other activities.
Will co-living make for a worth investment?
The next thrust is on co- living spaces which currently has a millennial population of 440 million. The concept is that the renters share the common areas like kitchen, balconies etc and that makes the renting experience more economical. These spaces are mostly rented by the working community, who are staying out of home for work and there has been an increase in the markets of Bangalore, Pune and other similar markets. Apart from usual renting, investing in a co- living sector would present the investors with a new asset class since the renters would be sharing the common areas on the same floor and more income can be generated from a single space.
With so many investment options in the commercial sector, getting good returns does not seem difficult at all for the investors anymore. It will however, take some time for the shift to happen completely and when not just big conglomerates but also small investors tread off the beaten track and shift their focus from residential to the new avenue of commercial property investment.