Entrepreneurs are often faced with tricky situations and tough decisions that amplify as their business grows. As an established business person, that might have bought commercial property over the years or individuals looking to downsize their existing setup; there is another dilemma, “Should I sell or lease this property after a certain period?” The answer to this question depends on the number of factors and requires a lot of thought and deliberation. It depends mainly on what the owner expects from the property and what the desired outcome is. We, through this article, would like to walk you through dynamics of both selling as well as renting a commercial space, helping you make informed choices.
Over the years, it is seen that the prices of property keep fluctuating, they either fall or rocket sky high. Hence, it is always risky when it comes to selling, we can never know if the perceived value of the property will actually stand true. This being said, let’s consider a scenario where the conditions are perfect and the property rates are soaring high.
In this case, selling the commercial space is the best option if you are looking for a one-time deal. If gaining a large sum of money at one go is what you are looking for, selling is a good choice.
The actual price, however, would depend on key elements including the location, connectivity, facilities, and amenities as well as accessibility. The current condition of the property, the surrounding area and the age of the premises also play a major role in determining the price a commercial space would fetch. Now that the price of the property is in place we need to find a buyer. It is extremely important to find the right buyer for your commercial space- someone willing to invest in your property. This might include a business similar or completely different to your own. Most importantly it is necessary to find someone who has the capital. Looking for a buyer can be done over the internet like most things today or through a trusted source. This is where a commercial real estate agent like “Manage Spaces” comes into the picture. Manage Spaces not only look for potential buyers for the property like commercial sites but also sees to it that they are legitimate and the right fit.
If selling the property is not on your mind for the time–being, you could consider renting the space. In hindsight looking at the World Investment Report 2016 by the United Nations, we see that India ranked fourth in developing Asia for Foreign Direct Investment inflows. This led to a lot of new companies, subsidiaries of companies or new businesses being established through the length and breadth of the country. The trend continued in 2017 where the commercial real estate market remained robust. This trade conducive environment led to a lot of start-ups and small businesses blossoming in major as well as smaller cities throughout the country. The Pan India leasing volume report was about 42.8 million square feet. This only proves that people prefer renting commercial spaces for an additional source of income.
Renting commercial property is beneficial because it helps to generate a passive income for an extended period. It comes with minor challenges which can be overcome, easily. To rent a commercial property you will require considering the following:
1. Whom do you want to rent your property? – finding the right tenant is important.
2. For how long are you going to rent – it is necessary to have a timeframe to rent a space.
3. Terms and conditions – it is necessary to predetermine the key terms and conditions before finalizing the deal.
4. Payment terms – along with rent for space there are periodic outgoings applicable on commercial properties which include electricity and other bills, taxes, etc. It is necessary to have a clear idea about who will bear these costs.
5. Signing the agreement – in India, except Maharashtra the lease term is 3 + 3 + 3 years with renewal options. Rents are generally fixed per year or for a 3-year period and are renewed thereafter either every year or in 3 years. In Maharashtra, a Leave and License Agreement is signed for a maximum tenure of five years including the renewal clause.
6. Registering the agreement – the agreement is then registered with authority by paying stamp duty and registration costs. These costs are usually borne by the tenant. Agreements are pre-defined and governed by the local sub-registrar who evaluates them in the context of a market value assigned to the records for each region or subregion.
7. The agreement can be signed on a Rs.100 or more stamp franking paper.
The culture of entrepreneurship is rampant these days, giving rise to another trend that surfaced mid-2017. The “co-working spaces”, a concept that is simple yet intriguing. Here, a single commercial property is divided into smaller units and rented to start-ups or individuals looking for an office space that is economical yet effective. These spaces are a win–win option for both parties as the landlord gets a better deal whereas the start-up does not have to rent an entire office.
It is necessary to look at a broader picture before arriving at a conclusion. Lastly in view of the 2018-19 budget that regarded MSME (Medium, Small and Micro Enterprises) as the major driving force of the country, is a blessing in disguise for the commercial real estate sector. More start-ups would mean the number of individuals looking to rent commercial spaces will rise considerably. According to Surabhi Arora the Sr. Associate Director of Colliers Radar India, the rent of the commercial property is expected to go up by 4–5% over 3 years as compared to the rate for selling property which will increase by 2-3%. There are also theories about smaller cities becoming commercial hubs and attracting more companies. As of now, we can only speculate what the future has in store for the commercial real estate market. However, with timely advice and guidance, commercial property owners can make informed choices.