The UK commercial property market has seen increased demand from investors this year after initial uncertainty following the decision to leave the EU, with record investment levels recorded in London. The UK’s profit potential for commercial property is significantly greater than the US and Europe, with typical leases in London lasting 10-15 years and around 8 years across the rest of the UK. So how can you make a success of commercial property investment?
Commercial property has many advantages, in that you avoid some of the hard labour and risk of residential property, such as being responsible for minor repairs, insurance costs and encountering potential issues collecting rent. Most small businesses tend to make minor improvements to the property themselves too, which could end up proving potentially valuable for you as the owner.
Commercial property typically involves tenants who have more at stake than residential occupants, so they are generally more reliable for payments, plus there is the advantage of their lease usually being long-term, meaning a steady stream of income. In addition, when you buy property directly it means that you could qualify for special capital gains tax treatment.
You could also invest via a fund with a physical property portfolio, although this can involve numerous risks. As Patrick Collinson, money editor of the Guardian asserts: “The word ‘liquidity’ takes on a crucial meaning in property funds.” If opting for a fund, bricks and mortar will be less liquid during an economic downturn but can help to preserve wealth in volatile times, while a property shares fund tends to follow the stock market so is more exposed to fluctuation.
Choose the Right Sector
If you’re buying a shop, the investment may seem minor compared to the possible return but there is the unpredictability of the retail sector to consider. Having said that, the number of shop openings has been on the rise over the last year in Britain, with shop closures falling as the ‘bricks-and-clicks’ business model becomes increasingly successful. We are, after all, a nation of shopkeepers and many Brits name owning a shop as their dream career.
Offices can involve a higher initial investment but if you’re leasing, there is always demand for office space. They have a great chance of appreciating over time, which could stand you in good stead for retirement. Just be aware that many small businesses outgrow their space quickly, which involves more work for yourself in finding new tenants. If you are buying an office for your own business premises, you could rent out space to other businesses to increase the value of your investment.
The industrial sector has continued to perform best since Brexit, with capital values expected to continue leading the way in the next 12 months. Occupier demand and rent prices continue to increase as availability falls, which admittedly indicates a need for more property to come to market. However, the profit potential can’t be ignored; the industrial sector counted for 11.1% of all property volume in 2016.
Secure A Good Buying Price
There are a number of factors to take into consideration when settling on a price. Properties with a central location, good transportation links and spacious layouts can often be worth investing in. With long-term leases being common, it can sometimes be worth paying extra to secure properties with highly desirable features, which will remain in demand during varying market conditions.
That being said, make sure you do your research to determine the right price range for the type of property you need. Speak to your estate agent, who will have a good knowledge of the market already and can also point you to their current listed properties as a guide. Researching what has previously sold in the area you’re looking at is a great indicator of how similar properties have been valued.
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