Commercial Property Investment: Contracted Yield Over Appreciation
Short answer: commercial pays 7–9% contracted yield against residential's 2.6–3.4%, and that gap is the entire reason institutional capital lives here. You are underwriting a tenant's credit and a lease, not just a building.
Pre-leased commercial yield
7–9%
Typical lock-in period
3–5 yrs
Common 3-year escalation
15%
Loan-to-value on commercial
50–60%
What the data says
Lease quality — tenant covenant, lock-in, escalation and security deposit — determines value far more than the building specification.
Financing is tighter and costlier than residential, so commercial demands more own capital per rupee of asset.
Exit depth is thinner: the buyer pool for a ₹5 crore pre-leased floor is a fraction of the residential pool at the same ticket.
Grade-A assets with institutional tenants command yield compression that Grade-B stock in the same corridor never sees.
How EstateVeda executes this
Underwrite the tenant's financials and the remaining lease term before valuing the asset.
Review the lease deed line by line — escalation, exit, fit-out obligations and maintenance liability.
Verify occupancy certificate, building approvals and property tax status independently.
Model a six to twelve month re-leasing gap into the return before committing.
Risks we underwrite against
A single tenant vacating can zero the income for a year in a soft leasing market.
Hybrid-work absorption trends have made office demand more corridor-specific than it was pre-2020.
Fit-out and brokerage costs on re-leasing are material and often omitted from seller projections.
EstateVeda verdict
Commercial is the right allocation once the portfolio can absorb a twelve-month vacancy without stress. Buy the lease and the tenant first; the building is the collateral.
Frequently asked questions
Is commercial property better than residential?
On yield, clearly — 7–9% against 2.6–3.4%. On liquidity, financing terms and vacancy tolerance, residential is easier. Commercial suits larger, more experienced capital.
What is pre-leased commercial property?
An asset sold with a tenant and lease already in place, so the buyer receives contracted rent from day one rather than taking leasing risk.
How much loan can I get on commercial property?
Typically 50–60% of value, at rates above home-loan pricing, which means commercial requires substantially more own capital than residential.