Traditionally, the commercial real estate was meant for business owners and industrialists. With the shift in market dynamics, the real estate for an individual is not limited to buy a house or a residential unit. Today, retail real estate offer higher capital appreciation as compared to residential investments. This category of commercial real estate in the broader terms includes properties, buildings and land that focus on generating profits specific to the retail industry. Over the past few years, the real estate market has witnessed a great amount of expansion and maturity in the retail sector. This growing inclination of the builders and individuals is due to steady rentals, market prominence, and higher return on investments in retail. Further, the demand is boosted by the smooth transition of services like leasing, renting, buying, selling and managing retail real estate properties.
Why invest in Retail Real Estate?
Majorly, the retail sector establishments includes shopping and entertainment properties. This sector includes clothing shops, florists, shopping malls, streets, and etc. Following are the major benefits of investing in this commercial real estate category.
The significant transformation in the retail real estate market has helped to resolve many historical challenges. Earlier there was a lack of reliable supply and no clear and standard regulatory procedures in place. Today, the market has grown and gained the maturity to streamline the investment process in the market segment. For all three formats namely high street retail, retail malls, and shopping centres are individually growing at a steady pace.
On an average, the retail investment yields range from 6 to 8 % which is higher than that of residential. These numbers are a great parameter to attract the investors. The calculation of the investment yields is based on the annual rental income and the price of the property. The retail industry is open for stream-based investment and promises much higher capital gains.
Typically, the retail leases are signed for at least 5 years. This long lease facility gives sufficient time to the individuals to establish their businesses. In turn, this offer security to the landlords. In a format of turnover-rents, the landlords get the opportunity to get a percentage share of the gross revenue from a business.
The costs involved in real estate taxes, utility bills, maintenance, insurance are all taken care of by the tenants and not the landlord. The retail leases offer more benefits for the investors. The investment in shopping malls or commercial hubs provide several advantages to the tenants as compared to isolated shops. The features like office staff, common reception, electricity and security maintenance and many others are handled by the business avenue owners.
The cost of any real estate asset majorly depends upon its location. There are higher chances of growth and capital gains if a shop is located in a mall or a high street. The location plays an important role in the transportation of the raw materials.
Overall, the retail spaces are transforming from service-based to experience-based avenues. The business owners are shifting to more entertainment-based developments like supermarkets, fitness, recreation centres and etc. The focus is to live, work and play and to provide continued growth opportunities.