For a start, there could be some real bargains available as high street retailer take a hit with Covid, and city centre offices are similar, but this could be the reverse for offices in small towns and city suburbs with the potential for re-locations. Industrial units and warehouses have been a real growth area with many locations in high demand for trades and home deliveries.
With commercial property your investment can start as low as the equivalent of a terraced house, up to a scale that’s in the millions, but there is plenty of choice for new starters. Commercial is sort of the reverse investment case of residential; whereas a house is at its highest resale value when it is with vacant possession, a commercial property is most valuable when it has a good tenant in it.
So buying up vacant commercial property can offer some real bargain opportunities, and depending on the location, re-development and what is now fashionably called re-purposing, can be very lucrative, and especially as this process is made all the easier with new permitted development rights – in other words, where planning restrictions are lifted.
In some ways investing in commercial property brings more risk: void periods tend to be longer than residential property, it can take longer to find a good commercial tenant, but unlike a residential on a 6 or 12 month tenancy, commercial leases are often 5, 10, 15 or even 20 years in length.
Business rates are payable when a commercial unit is empty, so you need the resources behind you to see this through, the weather the storm if need be, but when these units are let, providing you found a good tenant, you get a high income stream return over a very long period, and little hassle in the meantime.
You have a wide choice of investments to choose from in any one location, for example a given amount of investment might buy you a workshop / storage unit on an industrial estate, a small distribution warehouse, a high street shop or office or a combination of these, even with residential.
The key to success is doing your initial research and determining the level of tenant demand. A good tenant will provide you with a good income stream for years to come, a bad tenant will create a liability.
Like all types of investment, sensible people do not expect a get-rich-quick scheme, they just want a good solid investment giving them steady income and long term growth in value. Buy commercial property in the right location and you’ll get both, but don’t think you can do this without a lot of research and effort on your part.
The law on letting commercial property is a good deal more complicated that residential ASTs, and unless you are willing to do a bit of homework, studying up on this, and as well, you should think about getting some good professional advice from a chartered surveyor who specialises in commercial property. You will also need a good solicitor who also has a good deal of experience with commercial real estate.
Study the local market to see what type of property is in demand, speak to local agents to determine rent levels and calculate your returns over the long-term taking into account any re-development or refurbishment costs, as well as estimating the length of any void periods. You will generally need a higher level of cash to invest with commercial as financing is more difficult, especially for newbies with no successful track record behind them. With commercial there’s no such thing as a buy to let mortgage, its a commercial loan.
Keep an eye out for new developments in the local area which will, through regeneration in the locality, create extra tenant demand, and if you can buy ahead of the crowd you will likely get a better deal. Sites near motorways and transport hubs are ideal for warehousing.
If you decide that investing directly in commercial property and managing it yourself is not for you there’s a wide choice of ways to invest indirectly in commercial through a property fund. This means you will have a share of the fund which invests in different types of property thereby spreading your risk across the sector, because invariably when one type of property is up another type is down. There’s no doubt though, owning the whole property, if you successfully let it, will bring in the best return.
A 15 to 20 per cent annual return is not unheard of for say a refurbished good shop / office position with flats above, or a well positioned warehouse or commercial workshop. You will need expert tax advice and you will need to decide on the business structure, sole or partnership investor or limited company.
Currently, due to the downturn in much of the retail and office space, investing in industrial property is a real possibility, but if you are unfamiliar with warehouses, manufacturers, factories, depots, industrial businesses, storage, logistics and distributions, labs, showrooms, or telecom buildings it can be intimidating.
However, currently industrial real estate is considered to be one of the strongest and most appealing asset classes around, its often inexpensive to own, easy to operate and will typically provides a reliable and steady revenue stream.
With turmoil cause by the pandemic in the property markets, investors are now looking to the industrial and logistics sector to provide safe cash-flow income into the future.
Here are some investment opportunities in the commercial real estate sector: