Commercial real estate (CRE) has long been a favoured asset class for generating stable income and long-term capital appreciation. With the rise of Gen Z as a financially active generation, the question arises: should they dive into the world of CRE to generate alpha returns? While this sector offers potential, Gen Z must approach it with a clear understanding of market dynamics, technological advancements, and the economic landscape.

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Svaraj Anand, COO of Neo Developers, said, “There is a general trend among younger generations, including Gen Z, to avoid investing in industries traditionally regarded as long-term and safe approaches to wealth building. However, as Gen Z begins entering the workforce and generating income streams, tangible and visual investments like purchasing Commercial Real Estate (CRE) are becoming increasingly appealing. This type of investment offers numerous benefits, including longevity and continuity.

Commercial real estate is often considered less volatile than traditional investments like stocks or mutual funds. It provides opportunities to earn passive income without requiring full-time management, enabling a more flexible work-life balance and access to four distinct asset classes. Additionally, emerging commercial sectors such as co-working spaces and logistics hubs are experiencing significant growth.

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Challenges

Commercial real estate typically requires significant upfront capital, which could be daunting for a generation facing student debt and rising living costs. Economic downturns, such as those caused by the COVID-19 pandemic, can significantly impact property values and rental income. CRE investments demand a deep understanding of market trends, zoning laws, tenant management, and financing structures. Unlike stocks or mutual funds, CRE assets are not easily liquidated, which may limit financial flexibility. Gen Z might find traditional CRE’s environmental footprint troubling as a sustainability-conscious generation, pushing them toward green or ESG-compliant properties.

Should you invest?

For Gen Z, betting big on CRE can be a viable strategy for generating alpha returns, but it’s not without its challenges. The key lies in starting small, leveraging technology, and staying informed about market dynamics. By adopting a balanced and informed approach, Gen Z can unlock the potential of CRE while aligning investments with their financial goals and values.

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Manoj Goyal, Director, Forteasia Realty Pvt. Ltd says, “Gen Z millennials are in a great position to harness commercial real estate for long-term wealth accumulation. The young investors stand to benefit from the growth of digital economy, the trend of flexible working spaces, and institutional-grade platforms for investing as cities like Bangalore, Mumbai, and Hyderabad are witnessing an increase of 12-15% yearly growth in commercial property.”

He further said, “Fractional ownership models, which allow investment of only about Rs 10000 to 25000, help ease the investment from the general public rather than requiring the user to buy the whole property and promise rental yields of about 6-8% along with significant capital appreciation over time. With the rise of technology, the availability of non-conventional investment vehicles and the rapid growth of the Indian economy, it makes sense for Gen Z to turn to commercial real estate instead of other more conventional alternative investments.”

Additionally, Ashish Agarwal, Co-Founder at Enzyme Office Spaces, says, “For Gen Z, CRE is a new type of asset that can be strategically positioned in the Indian landscape considering how fast the country is growing economically. It is vital to note how investing in real estate through REITS is transparent, easy to liquidate, and has professional management, which allows young investors the ability to invest in premium office spaces, retail spaces, and logistical parks without the necessary large amounts of capital.”

“Another lucrative option in today’s Gurgaon market is purchasing a unit in an under-construction project and selling it after the developer has obtained the Occupancy Certificate (OC), potentially yielding 2-3x returns. While these investments require significant capital, the payouts are generally guaranteed. In my prudent opinion, this makes CRE a more secure and promising investment opportunity compared to cryptocurrency,” added Anand.