Commercial property surprises - bangalore version

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 I was looking to buy a commercial retail showroom in Bengaluru.

Asking price: ₹3 crore for ~1,000 sq ft. I asked the broker to call the owner. I wanted to negotiate. On the call, I told the owner: “₹3 crore feels quite expensive to me. I think ₹2.4 crore is a fair valuation. If you’re comfortable around that number, we can close it.” There was silence. A few seconds passed. And then… the owner started talking. For the next 35 minutes, he spoke. I barely said a word. He told me he had bought the property from the builder for ₹2.5 crore, 10 years ago. His argument was simple: “After holding it for 10 years, can’t I even expect a 20% return?” Then he added: “Everything is white. You can check the sale deed. The price is all there.” Fair enough. But then came the part that completely changed how I looked at the property. The showroom was generating roughly a 5–6% rental yield. Sounds okay, right? Except there was a problem. The rent was almost the same as it was 10 years ago. He was charging around ₹1 lakh/month back then. And he was still around ₹1 lakh/month now. Ten years. Almost no rental growth. Businesses struggled to survive. Tenants kept vacating. And during COVID, the property remained vacant for nearly two years. Suddenly, the ₹3 crore asking price didn’t look like a “property investment.” It looked like a 10-year-old story the seller was trying to sell me at today’s price. God, that 35-minute conversation gave me stress. 😂 But it also taught me one of the most important lessons about commercial real estate: Never buy a commercial property from a builder based on dreams of what it “could become.” Look at what it is today. What rent is it actually generating? How long has the tenant survived? How often does the property remain vacant? Has rent actually grown? And most importantly: At what rent can a real business actually survive in that location? Because ultimately, I believe: The price at which your tenant can survive is much closer to the real valuation of a commercial property than the price the builder or seller dreams about. A beautiful showroom with no sustainable tenant is not an investment. It’s just an expensive box. I’m definitely more cautious with my commercial property valuation parameters now.
via Vishal Vardhan @microcp2mltibgr

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