While the real estate sector still remains in a bear phase, investment advisers say that commercial real estate might provide better returns than the residential segment in the near term, especially for high networth individuals (HNIs) who can take greater advantage from the present slump.

“Both capital appreciation and the capitalisation rate (ratio of rentals to capital value of the property) in the commercial segment category seems to be better than in the residential property sector. While one can expect a 13-14 per cent capitalisation rate in commercial space, the same is around 9 per cent in the residential space. There are attractive investment opportunities to be made even in the present market scenario,,” Sandeep Singh, executive director, investment services, Cushman & Wakefield, said.

According to a report by ASK Investment, demand for Grade A buildings will continue to exist as the supply of such buildings is limited. Uttam Agarwal, head of HNI division, Bajaj Capital, said a group of HNIs with Rs 2-5 crores investible income each can pool money and acquire fully-built commercial space on lease and rent it, either to corporate houses or retailers, with an average yearly rental income of 10-18 per cent of the cost of the property.

Rajeev Deep Bajaj, vice-chairman and MD of Bajaj Capital, said, property prices depend a lot on location and in the present market situation, investors have to be selective about the geographical position of the property, whether it is in the commercial segment or in the residential segment. “With prices and rentals already down by 30-40 per cent, but one should be selective about the location of the property,” he added.

On overseas property market, experts were of the view that real estate markets abroad are more volatile than the Indian markets. Bajaj advised investors to wait and watch before investing in the overseas market.

According to Nasscom, the IT/ITeS (information technology and information technology-enabled services) and BPO (business process outsourcing) sectors, which are some of the prominent office-space occupiers in the country, may grow at 15 per cent till 2011. This growth should help absorb a portion of the available supply at affordable rentals. “While non-affordability and oversupply-led correction will push commercial market in India to favour tenants in the short term, the long term will see it transform gradually into a landlord-driven market once more,” the report said.