In India, commercial properties consistently get higher rental yields, with average returns typically ranging from 6% to 10%. A commercial building located in an urban area or tier 2 city built with good-quality materials and balanced incorporation of MEP systems attracts good tenant profiles and rental yields. Hence, Grade-A office spaces command premium rents.
Continue reading this blog to understand how construction quality influences rental yield in commercial properties.
What is Commercial Property Rental Yield?
You can define the term ‘commercial property rental yield’ as the yearly return generated by renting out a property for commercial uses (like office, retail, or warehouse). It is generally indicated in terms of the percentage of the property’s value. Rental yield value varies based on the property’s location, property type, tenant profile, infrastructure, and prevailing market conditions. Before investing in any commercial property, you must understand rental yield as a key metric.
There are two types of rental yield: gross rental yield and net rental yield.
Gross Rental Yield
Gross rental yield is computed as the yearly rental yield divided by the property value (without considering expenses). It provides a quick overview of potential returns, excluding costs such as maintenance, property taxes, and management fees.
The formula for Gross Rental Yield is
Gross rental yield = ((Annual rent) ÷ (Property value)) x 100
For example, suppose you bought a commercial property by paying ₹2 crore, and it generates ₹20 lakh per year in rental income. It will offer the gross rental yield,
= ((20,00,000) ÷ (2,00,00,000)) x 100
= 10 %
Net Rental Yield
Net rental yield is known as the capitalisation rate (cap rate). This metric factors in all operating expenses associated with the property, such as maintenance, insurance, property taxes, and vacancy periods. Net yield gives more clear picture of the actual ROI, as it indicates the income left after deducting expenses.
The formula for Net Rental Yield
Net rental yield = ((Annual rent – Annual expenses) ÷ (Property value)) x 100
For example, If you purchased a commercial space by giving ₹2 crore; you would spend 2 lakh for yearly expenses, and it generates ₹20 lakh per year in rental income.
It will present the net rental yield = ((20,00,000- 2,00,000) ÷ (2,00,00,000)) x 100
= 9 %
High Rental Yield Cities in India
According to Knight Frank and other leading real estate research sources, commercial property yields in India are as follows:
| City | Average Commercial Rental Yield (%) |
| Mumbai | 7.75 – 8.19 |
| Delhi-NCR | 8.0 |
| Bangalore | 7.75 |
| Hyderabad | 7.5 – 8.5 |
Key Construction Quality Factors Affecting Commercial Rental Yield in India
Structural Integrity and Compliance
- Adherence to IS Codes (such as IS 456 for concrete and IS 800 for steel structures) ensures the building’s safety, durability, and legal compliance, all of which are prerequisites for attracting high-quality construction and securing insurance for tenants.
- Suppose your commercial structure has high load-bearing capacity and seismic resistance (in earthquake-prone areas). In that case, this will minimise the long-term maintenance and insurance premiums, making assets more attractive to multinational tenants looking for business continuity.
Materials Used
- The good grade of concrete (M30 and more) and high-strength steel like Fe500D or Fe550D improve structural performance and longevity, minimising lifecycle costs and vacancy due to repair issues.
- By integrating premium MEP (Mechanical, Electrical, Plumbing) systems, such as energy-efficient HVAC, reliable elevators, and modern fire safety, organisations can enhance operational reliability and tenant satisfaction, which in turn directly influences lease rates and occupancy.
Architectural Design & Space Efficiency
- Flexible commercial space design with open floor plans and sufficient natural lighting is highly in demand. This is the primary requirement for diverse business needs, as it reduces tenant fit-out costs. This way, you can increase usable area, demand higher rents per square foot, and improve overall rental yield.
Fit and Finish
- If the building features premium flooring, modern facades, energy-efficient systems, and high-quality elevators, it can be considered a Grade A structure. This will easily attract blue-chip tenants who are willing to pay a substantial sum.
Sustainability Certifications
- Green building-certified buildings typically earn 7–10% higher rents and have lower vacancy rates, as many tenants now prefer eco-friendly workspaces. These certifications can also help to reduce operating costs by making energy savings of 20-30% and water savings of up to 50%, which are attractive to cost-conscious corporate tenants.
The Role of Construction Quality in Rental Yield
The growth and yield of a business greatly depend on the quality of the commercial building where the business runs. It considerably reduces the maintenance charge for tenants, increasing long-term value.
Some major significances are as follows:
Tenant Attraction & Retention
With good-quality construction, the commercial building looks more attractive and durable. This way, tenants can be attracted and retained in the same structure for a long time. In India, multinational corporations (MNCs) and large domestic enterprises always choose premium office spaces, specifically Grade-A buildings, that offer superior construction, modern amenities, and robust infrastructure. According to JLL’s Future of Work Survey, 50% of organizations in India are willing to pay a premium for spaces with leading green and sustainability credentials. Thus, the vacancy possibilities for these buildings are minimal, and rents can be kept higher. If the quality of the building is poor, it will face higher vacancy rates and inconsistent rental income.
Maintenance Costs & Longevity
If the building is built with poor-quality materials, the repair work will frequently recur. In contrast, buildings built with durable materials and modern engineering and safety standards typically require less maintenance, preserving rental income and property value over time.
According to research conducted by Andrew J. Nelson and Oliver Rakau (2010), operating costs in Energy and Environmental Design (LEED) certified buildings are 8-9% lower than for regular buildings.
Safety & Compliance
Before starting the construction of any commercial building, the builder should obtain permits from different authorities. The building plan should obey the NBC to obtain required permits and approvals, ensuring that building designs follow these standards for safety, accessibility, and functionality. RERA mandates project registration, transparent promotion, and timely completion of projects, which better trust among buyers and developers.
Brand Value & Appreciation
Premium quality commercial properties, particularly Grade-A commercial buildings, command premium rents and achieve higher resale values. These assets are often prioritised by institutional investors and Real Estate Investment Trusts (REITs) due to their potential for stable, long-term returns and minimal management complexities. According to JLL market research data, Grade-A office developments across India commanded an average rent of INR 92.4 per square foot per month as of H1 2024, representing a 19.8% premium over other properties.
How Investors Can Evaluate Construction Quality in India?
For every investor, checking the quality of the building is very important before making an investment. Commonly, the following are the checklists to check the quality of the building:
Structural Audit and Consultant Reports
A structural audit by certified professionals is essential to evaluate compliance with IS Codes (such as IS 456 for concrete and IS 800 for steel structures), load-bearing capacity, and seismic resistance. According to research conducted by Teena Joy (2014), conformance to codes and standards is one of the most important factors for construction quality, as agreed upon by both contractors and consultants in large Indian projects. Investors should review consultant reports for documented evidence of structural integrity, including results from load tests and periodic inspections.
Quality of Façade Systems and Waterproofing
Ensure the front view of a commercial building is constructed with high-quality materials, adheres to installation standards, and possesses waterproofing capabilities. According to the ACI Report (2019), around 85% of structural damage in buildings is caused by water infiltration. Therefore, visual checks and third-party test reports are recommended to confirm adherence to specifications.
HVAC and Lift Systems
Check whether your building follows the technical specifications of HVAC and lift systems. Maintain the optimal cooling capacity to ensure energy efficiency. Good-quality and properly maintained systems help to minimise operational costs and enhance the comfort level for tenants. Ask for manufacturer certifications and maintenance records to ensure reliability.
Fire Safety Compliance
Check whether the building follows all fire safety rules as per standards like NFPA (National Fire Protection Association) and IS 2189 (Indian Standard for fire detection systems). Make sure to integrate safety features such as fire alarms, sprinkler systems, smoke detectors, and marked emergency exits. It is also important to check if the building has a fire safety certificate from the local fire department. This certificate is not only required by law but is also important for getting property insurance.
Building Energy Consumption
Assess the energy efficiency of your structure through its BEE (Bureau of Energy Efficiency) rating. A higher rating means the building uses less electricity, which helps reduce monthly utility bills. This also makes the property more attractive to tenants who care about sustainability. Request energy audit reports to determine if the building features energy-saving technologies such as LED lighting, solar panels, or smart meters. These details show how well the building manages energy use.
Future Trends in Commercial Construction & Rental Yields
- The Indian construction market, including residential and commercial, is projected to grow from USD 1.21 trillion in 2025 to USD 2.13 trillion by 2030, at a CAGR of 12.1%, driven by government-backed infrastructure projects and urbanization.
- According to the INDIA COMMERCIAL CONSTRUCTION MARKET SIZE & SHARE ANALYSIS, commercial construction is expected to reach USD 89.08 billion by 2030, with strong demand for office, retail, and mixed-use spaces, especially in major metros.
- Sustainable and green building practices are gaining more significance, with developers adopting energy-efficient technologies to attract tenants and command premium rent.
- The rise of Real Estate Investment Trusts (REITs) and increased foreign direct investment are boosting liquidity and transparency in the sector, supporting stable rental yields.
- The integration of digital technologies like BIM, AI, and IoT enhances construction quality and operational efficiency, leading to better tenant retention and higher rental yields.
- Government initiatives such as Smart Cities Mission and Make in India are fostering long-term growth and creating new opportunities for commercial real estate investors.
The quality of commercial construction decides the rental yield of commercial properties in India. High-grade materials, adherence to IS codes, sustainable certifications, and efficient MEP systems reduce maintenance costs and attract premium tenants. Grade-A office spaces with better finishes and amenities command higher rents and maintain low vacancy rates. As demand grows in urban and tier-2 cities, investing in well-constructed commercial properties offers superior returns compared to residential spaces. It’s wise to hire a trusted commercial construction company like Brick & Bolt that specialises in Grade-A office space development. At Brick & Bolt, we prioritise quality at every step. Our quality assessment system, QASCON, ensures over 470+ quality checks throughout the project, covering design, materials, and construction. This process helps us deliver strong, precise, and long-lasting structures.