Metrics
Real Estate
Commercial Property ROI Calculator
Analyse the return on investment for commercial real estate — cap rate, cash-on-cash return, and net profit over your holding period.
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CRE investors
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Loan analysis
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Before you calculate
- Commercial properties typically yield 6–9% in India, much higher than residential.
- Include CAM charges, property tax, and vacancy buffer in your analysis.
- Cash-on-cash return tells you the actual return on the cash you put in (excluding loan).
Commercial Property ROI Analysis
Commercial real estate can deliver higher yields than residential, but proper analysis of cap rate, cash flow, and leverage is essential before investing.
1. Read cap rate and cash-on-cash together
For commercial ROI, cap rate tells you how attractive the deal is on the property price, while cash-on-cash return shows what your equity actually earns after loan EMIs. Use both before deciding how much to leverage.
2. Build conservative vacancy and rent assumptions
Commercial spaces can face long vacancies. Model slightly higher vacancy and slower rent growth than you hope for. If the investment still looks reasonable, you are taking a more defensible bet.
Cap rate vs rental yield: the commercial distinction
Cap rate = Net Operating Income ÷ Property Value. NOI is gross rent minus vacancy losses, management, maintenance, and insurance — but before loan repayments. A 7% cap rate on a ₹1.5 crore commercial space means ₹10.5 lakh annual NOI. Unlike residential rental yield (which often uses gross rent), cap rate must use NOI to be meaningful for investment comparison.
Cash-on-cash return for leveraged commercial investment
Cash-on-cash return = Annual cash flow after loan repayment ÷ Equity invested. For a ₹1.5 crore property funded with ₹60 lakh equity and ₹90 lakh loan at 9% p.a., annual loan cost is roughly ₹9.5 lakh. If NOI is ₹10.5 lakh, cash flow after debt servicing is only ₹1 lakh — a 1.7% cash-on-cash return on ₹60 lakh equity. Higher leverage amplifies both gains and losses.
Lease structure and its impact on risk
Commercial leases in India typically run 3–9 years with a lock-in period. CAM (Common Area Maintenance) charges are usually passed through to tenants in Grade-A offices, protecting rental income from cost escalation. Vacancy risk in commercial is higher than residential — empty properties can stay vacant 12–24 months in weak markets. Evaluate tenant quality and remaining lease tenure before buying.
Commercial vs residential: what the numbers show
Commercial yields (6–9%) are 2–4× higher than residential (2–3%) in Indian markets. However, commercial requires larger tickets (₹1 crore+ for quality assets), longer transaction timelines, lower liquidity, and carries GST on rent and TDS obligations. REITs offer retail investors access to Grade-A commercial exposure from ₹300–500 with quarterly dividends, solving the liquidity and ticket-size problem.
Frequently Asked Questions
What is a good cap rate for commercial property in India?
A cap rate of 7–9% is generally considered good for commercial property in Indian cities. Grade-A offices in prime business districts of Mumbai, Bengaluru, and Hyderabad may price at 6–7% cap rates due to tenant quality and lower vacancy risk. Tier-2 city commercial and peripheral areas may offer 8–10% but with higher vacancy risk.
How is commercial property investment different from residential?
Commercial properties offer higher rental yields, longer lease terms (3–9 years vs 11-month residential leases), CAM charge pass-through, and often predictable rent escalation (15–20% every 3 years). However, they require larger capital, carry higher vacancy risk during downturns, have limited tenant pools, and are significantly less liquid.
Is GST applicable on commercial property rent?
Yes. GST at 18% applies on commercial rent if the landlord is GST-registered (above ₹20 lakh annual turnover). The tenant deducts TDS at 10% on rent exceeding ₹2.4 lakh per year. If the landlord is registered, the tenant can claim ITC on the GST paid. Verify current provisions with a tax advisor for your specific situation.
What are the major risks in commercial property investment?
Key risks include: tenant vacancy (commercial can stay empty 12–24 months), tenant default (MSMEs and startups are higher risk than MNCs), cap rate expansion (rising cap rates compress property values), economic cycles (leasing drops sharply in recessions), and illiquidity (finding a buyer takes 6–18 months). REITs mitigate most of these for smaller investors.