Despite the rise in popularity of commercial real estate investments, the retail sector has recently attracted the attention of most investors, especially those in the mid-income bracket. Retail spaces provide several advantages for investors, including better returns on investment, reduced risk, and quicker resale. However, there are also some drawbacks.

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The idea of retail spaces has greatly changed throughout time, moving from conventional stores to high-street retailers, neighbourhood shopping centres, and malls. Investors are paying close attention to this now. Commercial stores and showrooms have thus experienced a significant increase in demand. Additionally, middle-class investors choose retail over residential properties due to the former's better returns, which range from 6.5 to 8.5 percent compared to 2-4 percent rental yield (CBRE Report). Retail real estate investing, like any real estate investments, offers advantages and disadvantages. The advantages and disadvantages of purchasing retail space are listed below.

Why invest in shops?

Here are a number of reasons to invest in retail stores and showrooms if you're seeking for a second investment choice:

•             A retail location has higher leasing fees. An investor can make more money from a commercial property compared to a home of comparable size.

•             Finding a tenant for a shop is simpler because there are companies and vendors that need retail spaces even in small micro-markets and growing communities.

•             Having a store also enables one to launch a business. One might get ready for a second income stream by making an early investment in a store.

•             Compared to retailers, residential properties require more maintenance because the owner is often responsible for upkeep. In the case of stores, the owner's duty to maintain the interior is significantly diminished after a merchant occupies the building and has the interiors customised to his or her preferences.

•             In the event of stores purchased from reputable developers or those located in malls, there is very little possibility of invasion. Additionally, compared to office buildings, the entry cost of investing in a store is lower depending on the size and location.

•             After the epidemic, it is anticipated that a popular store would continue to prosper. A shop is therefore a source of high value and continues to be in demand, ensuring a consistent return. In India, offline retailers are really always in demand.

•             Compared to residential properties, reselling a retail property is more simpler. Additionally, because there is a little supply and great demand, stores may charge more. The pricing of a shop is significantly influenced by the floor level as well. The shops on the ground floor are often more in demand and more expensive since they are more likely to draw heavy traffic. People can more easily locate stores that are on the ground floor.

Risks associated with buying commercial properties

While purchasing a business has many advantages, one should be aware of the following drawbacks:

•             A large investment is needed to purchase a retail location. Pricing comes out on top when you assess the drawbacks of investing in the business sector. A shop location demands a larger investment than a home does. An investor should only invest in retail space after considering his financial commitment and demands.

•             In the case of commercial property, the loans are more expensive. The location of the business, the investor's profile, the length of the loan, and the method of repayment are some examples of the variables that affect interest rates and other terms and conditions. For commercial buildings, the financing rates are typically 100–200 basis points higher. The loan application procedure is more involved, and the financial institution or bank that sponsors the loan takes longer to approve the funds.

•             For purchasing a store, the government offers less tax incentives. Investors appreciate it because of the major easing of house loan requirements and EMI (Equated Monthly Instalments) repayment for residential properties. On the other hand, as an investor in a business property, one cannot request a tax break.

•             In the event of an empty property, having financial backup is essential. Despite being simpler than finding a renter for a residential unit, getting a tenant for a store is nonetheless difficult. If the property was purchased using loans, the owner should have adequate money to cover the EMIs in the event that the tenant decides to shut down/move the retail company and vacates.

•             If a shop has previously been purchased using EMIs, one cannot apply for a loan to renovate it. You cannot combine two loans.

•             Retail assets have substantially greater costs for property tax, water and energy, insurance, stamp fee, and registration. If the store is housed in a mall, the developer will put on Common Area Maintenance (CAM) fees. Whether the store is open or closed, the basic rates are always in effect.

•             If a shop has previously been purchased using EMIs, one cannot apply for a loan to renovate it. You cannot combine two loans.

Retail assets have substantially greater costs for property tax, water and energy, insurance, stamp fee, and registration. If the store is housed in a mall, the developer will put on Common Area Maintenance (CAM) fees. Whether the store is open or closed, the basic rates are always in effect.

Source From:- navimumbaihouses