While there have been enough examples of Bollywood stars residing in rented apartments in Mumbai rather than buying one or preferring to rent their apartments to others, there are some who purchase commercial space for leasing purposes.
Moneycontrol spoke to several experts, including real estate brokers and consultants, to understand why Bollywood stars or several high net worth individuals (HNIs) prefer to purchase commercial properties and rent them out instead of residential ones.
According to experts, the major reason for this trend is the annual rental yield that the commercial real estate market offers in comparison to residential real estate.
What is rental yield?
Rental yield is the amount the property owner receives annually by renting out a property. For example, if one purchases a property worth Rs 1 crore in Mumbai and earns an annual rent of Rs 8 lakh, the rental yield for the property owner is 8 percent.
Who rented out what?
Bollywood actor Salman Khan leased out 27,650 square feet (sq ft) of space spread over four floors to TNSI Retail Private Limited, a subsidiary of Future Retail Limited, in Mumbai, at a rent of around Rs 89.6 lakh per month in 2022.
In 2021, director Karan Johar leased out two commercial properties owned by him in the name of Dharma Productions for a rent of Rs 17.56 lakh and Rs 6.15 lakh per month.
Also read: Karan Johar renews lease of two commercial properties in the name of Dharma Productions
Actors Ajay Devgn and Hrithik Roshan also own commercial real estate spaces in Mumbai.
Why commercial?
"Commercial properties are the hot cakes. Thanks to economic growth, the start-up culture, and other businesses, commercial premises are in high demand. Commercial properties fetch high rental yields of between 6 percent and 9 percent. Also, when a commercial property is rented out, it is for a longer period of time than a residential property," said Aashish Panday, Director at Monksproperty.com.
He added, "For example, a residential house gets rented out for one to five years, whereas a commercial property gets rented out for three to 15 years with a regular escalation in rent, which can be 5 percent to 7 percent per annum. Such rental hikes are not possible in the residential segment."
According to Knight Frank India, the trend of Bollywood stars or noted public figures, including HNIs, investing in commercial real estate (CRE), has been prevalent for a long time.
Also read: Why do some Bollywood stars prefer renting apartments in Mumbai rather than buying them?
"In uncertain times like now, when economies globally are facing turbulence, this investment avenue becomes more attractive. Such wealthy investors generally have high but volatile active/primary incomes, and commercial real estate investments hold the potential to provide them with inflation-protected, stable annuity income in the form of rental cash flows," said Vivek Rathi, National Director, Research, Knight Frank India.
He added, "The commercial real estate asset class generates a higher rental yield of 6 to 7 percent compared to the residential segment, which garners 2 to 3 percent."
Also read: Salman Khan leases commercial space in Mumbai to Future Retail arm for Rs 89.6 lakh per month
Mumbai tops commercial real estate returns
According to CBRE India, another real estate consultant major, commercial assets like offices, retail, and warehouses usually have gross yields in the range of 6-10 percent in metro cities.
"Grade-A office spaces in Mumbai can easily offer an average yield in the range of 6-8 percent. Likewise, retail assets can offer yields of up to 9.5 percent in prime locations in Mumbai. With the high cost of land in Mumbai, the commercial real estate yield in Mumbai is usually higher compared to other cities like Pune, Bangalore, or Hyderabad," said Anshuman Magazine, Chairman & CEO, CBRE India.
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