High Net-Worth Individuals Shift Focus to Commercial Real Estate for Lucrative Yields
As Indian HNIs and UHNIs look for reliable investment avenues, commercial real estate is emerging as a top choice, offering yields of up to 10%. Discover why this asset class is becoming the new darling of the wealthy.
Commercial Real EstateHigh Networth IndividualsReal Estate InvestmentRental YieldsAsset AllocationReal Estate NewsSep 01, 2025
A Kotak Private Banking Survey “The Top of The Pyramid” launched in March states that while equities continue to hold the most significant allocation among India’s ultra-rich, real estate comes in second, accounting for 29% of their portfolios. Within that, commercial real estate now commands greater loyalty than residential. About 45% of respondents named commercial assets as their most preferred, versus 33% who favoured homes and apartments.
That’s an asset class that promises yields of up to 10%, compared with barely 2-4% from residential properties. For High Net-Worth Individuals (HNIs) and Ultra HNIs (UHNIs), the numbers speak for themselves — and so do the shifting regulatory winds, which have made other asset classes less compelling.
Preferences may vary based on individual investment strategies and personal goals. This isn’t a marginal shift. The population of HNIs in India — pegged at 8.5 lakh in 2024 — is expected to double by 2027, fuelled by the rise of new-age entrepreneurs, tech founders, and family businesses benefiting from India’s rapid economic expansion and stock market boom. With their wealth growing, the question isn’t whether they’ll invest in real estate, but what kind of real estate. And increasingly, the answer is clear: commercial.
The logic is rooted in hard numbers. Residential properties, although aspirational, rarely function as effective investment assets. Their rental yields hover at a modest 2-4%. Commercial real estate, by contrast, offers higher yields — and with the right tenants, location, and timing, can also deliver capital appreciation.
On the commercial side, they invest in pre-leased assets, which give them a certain yield on an annual basis, typically ranging from 6-8%. Then any increase or pop on top of that is dependent on various factors, which include the real estate appreciation cycle and the rental escalations that happen over time.
Debt products, once considered safe bets for HNIs, have been rendered unattractive by recent tax changes. Gains from debt mutual funds now are taxed at slab rates without indexation. With the new debt taxation regime, this asset class has somewhat taken a back seat. Yields are at their lowest, and after-tax returns on debt fall below 5%.
For the wealthy, that’s a non-starter. Compare that with equities, taxed at 12.5% for the long-term holding, or real estate, which offers both cash flow and appreciation, and the preference becomes obvious. Elsewhere, there are limits on overseas investments under the Liberalised Remittance Scheme (LRS). For HNIs, commercial real estate fits perfectly between equity and debt.
The Indian commercial real estate landscape today is significantly broader than it was a decade ago. While office towers remain the most coveted, investors are looking at newer, more diversified opportunities.
Investments into industrial & warehousing and hospitality segments stood out with sharp yearly growth of 288% and 3,810%, respectively. This is being driven by rising e-commerce penetration and mounting tourism.
Even data centres are emerging as a serious asset class, riding on the back of India’s digital transformation. Co-working/flex spaces, ESG-certified assets, and high-quality office properties are among the top choices. Tier-II cities are also capturing HNI attention for long-term appreciation.
What makes commercial real estate attractive isn’t just the headline yield of 6-10%. It’s the stability of cash flows, thanks to longer lease tenures and built-in rental escalations. Unlike equities, which swing with market volatility, a Grade-A office building leased to a blue-chip tenant offers predictability. There’s also a possibility of capital appreciation on account of rental increases due to which property values increase. It’s a twin benefit.
For HNIs, this makes commercial real estate akin to an income-generating bond with equity-like upside.
But buying an office block or industrial shed outright isn’t always feasible — or desirable. That’s where the Alternative Investment Fund (AIF) route comes in. The AIF model offers streamlined access and target IRRs (Internal Rate of Returns) in the range of 16-18%, with reduced operational burden as compared to direct ownership. Typically structured as Category II AIFs, these funds pool investor money into a Special Purpose Vehicle (SPV) that acquires the asset. Rentals flow into the SPV, are distributed back to the fund, and then to investors. At the end of the fund’s life cycle, the asset is sold, delivering capital gains.
The entire process of buying, managing, and disposing of the asset is handled by the investment manager. This requires expertise and a lot of experience. Minimum ticket size, as per the Securities and Exchange Board of India (Sebi), is Rs.1 crore.
The scale of investments varies dramatically. At one end are family offices, writing cheques as large as Rs.1,000 crore. At the other end are individual HNIs, buying smaller leased offices across cities. A few years back, Rekha Jhunjhunwala backed Kinnteisto LLP, for instance, acquired nearly Rs.740 crore worth of office space in Mumbai’s Bandra-Kurla Complex (BKC) and Andheri. Other family offices are allocating Rs.200-500 crore annually into this space.
Also, fuelled by startup listings and IPO windfalls, many professionals who have become millionaires are now hedging their risky equity bets with commercial real estate. Smaller HNIs, meanwhile, focus on compact office units leased to local businesses, with ticket sizes of a few crores. This layered investor base has created a vibrant marketplace, with capital flowing in at both ends.
For all its promise, commercial real estate is not without risks. Experts caution that investors must look beyond glossy brochures and rental promises. The first risk is developer credibility. Second is duration risk — if the project isn’t completed on time, returns get delayed. Third is vacancy risk, especially in oversupplied markets.
Many overseas investors with easy money—thanks to loose monetary policies by global central banks—accustomed to lower yields in their home countries and seeking relatively higher yields in India, can also drive down rental yields. Sometimes, maintenance of such properties can become a headache. Renting it out, finding the right tenant, keeping it in proper shape, and then finally trying to get an exit can be pain points.
Quality of tenants, length of leases, and maintenance standards matter enormously. Over a period of time, you would see that your yields would average to about 10-11% with rental escalations and capital appreciation of properties. Due diligence, diversification, and proactive management are crucial for sustaining returns. Insurance, cash reserves and a clear-eyed view of risks can make the difference between steady income and disappointment.
Despite the allure of double-digit yields, investing in full commercial real estate is mainly out of reach for retail investors. The entry cost is high, the due diligence complex, and the risks nuanced. If someone comes with a Rs.50-100 crore cheque, they can negotiate early, pre-leased opportunities, much like investing in a pre-IPO story. That’s simply not possible for retail investors with smaller ticket sizes. Even when smaller units are available, liquidity is limited, and management responsibilities can be overwhelming, which is why, for now, commercial real estate remains firmly in the territory of HNIs and UHNIs.
While wealthy Indians utilise REITs for diversification, these instruments are preferred mainly by retail investors, offering low entry costs, liquidity, and steady income with minimal capital or operational risks.
In the end, commercial real estate is emerging as a strategic asset class— offering steady income, tax efficiency, diversification, and inflation-linked returns. From gleaming office towers in Mumbai to logistics hubs outside Bengaluru, from hospitality assets capitalising on India’s tourism boom to futuristic data centres, the landscape is expanding rapidly. And with India’s economic growth showing no signs of slowing down, the future looks bright for HNIs and UHNIs in the commercial real estate market.
Frequently Asked Questions
What are the main reasons HNIs are shifting towards commercial real estate?
HNIs are shifting towards commercial real estate due to higher rental yields (up to 10%) compared to residential properties (2-4%), stable cash flows, and the potential for capital appreciation. Additionally, recent tax changes have made other asset classes like debt products less attractive.
What are the key risks associated with commercial real estate investments?
Key risks include developer credibility, duration risk (delays in project completion), vacancy risk, and maintenance challenges. Overseas investors with easy money can also drive down rental yields, and the quality of tenants, length of leases, and maintenance standards are crucial for sustained returns.
How do Alternative Investment Funds (AIFs) help HNIs invest in commercial real estate?
AIFs offer streamlined access to commercial real estate with target IRRs of 16-18%, reducing operational burdens. These funds pool investor money into a Special Purpose Vehicle (SPV) that acquires and manages the asset, distributing rentals and capital gains to investors.
Why is commercial real estate not suitable for retail investors?
Commercial real estate requires high entry costs, complex due diligence, and nuanced risk management, making it out of reach for retail investors. The limited liquidity and overwhelming management responsibilities further deter retail participation.
What are some emerging opportunities in commercial real estate?
Emerging opportunities include investments in industrial & warehousing, hospitality, data centres, co-working/flex spaces, and ESG-certified assets. These segments are driven by rising e-commerce, tourism, and India’s digital transformation.
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