In the unpredictable realm of commercial real estate, there is yet a single kind of real estate asset that is of previous interest to both renowned investors and organizations leaders: office space for sale.
As a long-time real estate investors branching out into an asset portfolio, a corporation seeking a permanent home, or a forward-thinking businessperson seeing value in the latest working trends, the purchase of office space is no longer simply a move in real estate, it is now a tactical, strategic move.
How the Office Space Remains Tough in a Post-Pandemic World
The COVID-19 pandemic has been rapidly changing how businesses are run, which is why a headline announcing the so-called death of the office seems to be popping everywhere. According to data and investment patterns however, it appears that office space is not dead, and it is actually changing.
The Office occupancy across the world has consistently increased back, and the hybrid work models have stabilized according to a 2024 report by CBRE. More than 45 million sq. ft. of office space has been absorbed in only the year 2023 in India alone2 a huge improvement in comparison to the pandemic times.
What is the implication of this on the potential buyers?
The office market is coming back to balance, rather than going backward
Office spaces are no longer obsolete, rather, they are even more specialized, localized, and design oriented. With employee engagement, wellness and collaboration being at the forefront of company priorities, there is increasing need of modern, owned office spaces within touted micro-markets.
Who qualifies to buy an office space?
Although lease remains the renting norm in most small and medium sized enterprises, having and holding an office property is highly irresistible provided that certain conditions are fulfilled. These are the people that ought to take a serious consideration of properties that are available:
- Business Owners in Place
When your business is stable, cash positive and probably will never move out of one city then it makes sense to buy office space; get rid of rental increases and take control of your physical branding, layout and scalability. - Long term Holders of Real Estate Investments
Commercial real estate and office spaces particularly those which are pre-leased can fetch up to 6-9 percent on a yearly basis, much higher than residential investment on annuity which is in the vicinity of 2-3 percent on a yearly basis in most Indian cities. Also, the appreciation of the capital in commercial centres is more foreseeable upon supported tenancy and infrastructure development. - HNIs and Family Offices
Office properties present an investor with a real, income-generating asset to help hedge against inflation, diversify exposure to fluctuating equities, and form a generational asset. - Start-ups and scale-ups
Where startups have long gravitated toward flexibility, scaleups are tying themselves into hostage-taking office arrangements in business parks to signal their foundational team and client identity, their credibility, and financial security.
Advantaged Pros of purchasing Office space
The reason why clever investors are favoring office property investment is as follows:
Income rental
Passive income is one of the major attractions. Offices may begin generating returns on day-one with already Grade-A tenants in place such as banks, MNCs, or coworking brands and may also have good location.
Capital Appreciation
Areas in the proximity of future development of infrastructure (metros, expressways, airports) have a powerful capitalization. As an example, the prices of commercial spaces in Zirakpur, Mohali and Dwarka Expressway, in the past 5 years, have all appreciated by more than 10 percent.
Tax Advantage
The owners are able to take deductions on interest charged on mortgages, property tax, repairs as well as even on depreciation hence maximizing their taxation liability.
Security and Control
Ownership eliminates the unpredictability of lease renewals, landlord disputes, or sudden rental hikes. Plus, you can tailor the space for your brand’s long-term vision.
Debating the issue: Pre-Leased vs. Vacant: Which one should you buy?
Perhaps the biggest question to most people in the commercial real estate is: would you purchase an empty office space and lease it- or would you get a pre-leasing?
The following is a compare and contrast of this:
| Characterstic | Pre-Leased Office | Vacant Office |
|---|---|---|
| Rental Income | Begins Now | Delayed until leased |
| Risk | Lower (tenant already in place) | Higher (uncertain occupancy) |
| Price | Slightly higher | Often more negotiable |
| ROI Clarity | High | Depends on future lease deals |
| Suitable For | Passive investors, retirees | Active investors, developers |
Pre-leased office spaces provide a more predictable and safe entry into the business or investment in the commercial real estate sector by most new investors or business owners.
In India, what are the hottest markets on office space?
The Indian commercial real estate is not only regionally differentiated This is a breakdown of the high investor traction which is being experienced across cities and areas:
- Gurugram (Golf Course Ext. Road, Cyber City) – Where one finds that IT/ITES companies and startups prefer it
- Hyderabad (HITEC City, Gachibowli) – It has some of the biggest international Tech Giants like Microsoft and Amazon.
- Bengaluru (Whitefield, ORR) – India continues to be the tech hub
- Pune (Hinjewadi, Baner) – Good demand of information technology, as well as, biotechnology offices
- Zirakpur & Mohali (Punjab) 6 -7 per cent yield and growing investor interest as entry levels are very low
- Mumbai (BKC, Andheri East) – costly, with lots of tried and tested prestige and brand value
What the Report Says, Data To Confirm the Trend
- A 2024 Knight Frank report indicates a rise in office transactions in India by 30 per cent YoY in H1 2024 and it was led by IT, BFSI and even flexible workspace operators2.
- By the year 2025, JLL India estimates that Grade-A office inventory will upsurge by 45 percent in the tier-2 cities, which is an indication of companies proliferating their operations to locations outside the metropolitan areas4.
- ANAROCK reports an increase of 12 per cent within the last year in investor inquiries regarding pre-leased assets on account of the quest to earn stable returns in the changing marketplace5.
Factors to Keen on When Purchasing an Office
The following are some of the main parameters that should be considered prior to investing:
1.Location & Connectivity: Proximity to the metro lines, airports and major roads Setting and accessibility to the metro lines, airports and major roads Setting and availability to the metro lines, airports and major roads
2. Who is entering the space? Long term lease with the reputed brands = reassurance
3. Lease Conditions: Lock up period, escalation and exit terms of lease are to be reviewed
4. Developer Reputation: This should be a developer who has a history of working in commercial construction
5. Maintenance & CAM: Maintenance is low hence increasing the net returns actually
6. Title Clarity & Compliance: A clear title should exist regarding the legal ownership of the property, the property it is under RERA registration and the requisite commercial approvals should be in place
Expert Advice Prior to care Before care
- Get a Real Estate Advisor: His or her work will include due diligence, negotiation of price, and profiling of tenants.
- Plan to the Future: Office spaces are not flipping properties. Wait 5-10 years to get the real payoff.
- Diversify based on Markets: Have one asset in one metro and another in a tier 2 city that is emerging.
- Keep Informed of Zoning Regulations: Zoning policies and laws can have a huge impact on the future price.
A Word of Closing: Do You Need to Buy an Office Space?
Office space is the perennial investment in an era when fortune can be amassed not only by innovation but through proper asset allocation. The long run fundamentals remain positive even though there would be short run fluctuations:
- Quality work environments are still in demand
- The urban economy of India keeps growing
- The revenues are higher than the majority of the residential property Returns outperform most residential assets
With rates at their lowest point, and the probability of a sudden increase unlikely, now may be the time to make a purchase, particularly purchasing a pre-leased office buildings in a high-growth corridor.
And in the real-estate business you do not wait to buy… you buy, and wait.
References
- CBRE India Office Market Report, 2024 ↩
- Knight Frank India, Commercial Real Estate Outlook, H1 2024 ↩
- JLL India, CRE Forecast 2025 ↩
- ANAROCK Investor Sentiment Survey, 2024 ↩
