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India’s rich investors have switched to buying commercial property in place of housing over the last 2-3 year following a tapering down of property price appreciation in the residential real estate in top Indian cities.

Commercial property serves as a lucrative investment option with investors gaining from rental income as well as capital appreciation. Grade A commercial properties give 9-11% rental returns on the capital value depending upon interest rates. Investors have been buying properties ranging from 1,300 sq ft to 20,000 sq ft.

“Investors are looking to pick up even under-construction properties unlike before when only ready properties were being acquired. We have been able to conclude four outright transactions at our 0.5 million sq ft commercial project at Andheri (suburb of Mumbai) in the last two months, which is a much better pace than usual.

Major residential markets in the country saw average residential property prices in the city and suburbs appreciate by only 3.3% in 2015 as against an average of 7% in 2014, a study by property consultancy JLL India revealed.

In the Delhi-National Capital Region, a big investor market, Bengaluru and Chennai have seen prices appreciating around 2% in the last quarter of 2015. The trend is similar in peninsular India too.

Builders too are scrambling to build more commercial space. House of Hiranandani is looking to foray into commercial real estate and firming up plans to increase its footprint in Bengaluru & Chennai. “We are looking at an inorganic expansion strategy to expand the commercial portfolio and is on the lookout for projects which have already kicked off but are stuck due to lack of funding or expertise.

Commercial real estate witnessed a turnaround in 2015 after being sluggish for over three years. Cushman & Wakefield predicts absorption is likely to gain momentum with current pre-commitment levels across eight cities seen at 11.80 msf in 2015, which would give a fillip to the trend of large deals in 2016 amidst frenzied consolidation activity in the market. Most of the pre-commitments are likely to be absorbed in 2016, with the some of them spilling over to 2017.