Investing in commercial property can be an extremely lucrative business and it’s the motivation for urban regeneration and renewal. The UK’s commercial property market draws investors from both the UK and overseas, and the 2017 Royal Institution of Chartered Surveyors (RICS) UK Commercial Property Market Survey showed that investor demand has risen for UK commercial property across all sectors.
A commercial property is real estate that has been approved and designed for business purposes and produces a financial return for its owner, usually in the form of rent. Commercial property generally falls into four categories: retail, offices, industrial and leisure.
Companies and those who invest in pension funds, private equity funds or have other forms of investment own most commercial properties. This means that you can choose to invest directly or indirectly. By investing directly, you do so by buying a fund that holds actual physical property in its portfolio or by buying a property yourself. If you go indirectly, you invest in property companies, developers and house builders, or in funds invested in such companies. It's definitely worth considering the commercial market, as investment returns from properties are anywhere in the region of 10% plus.
Think carefully about the location. If you are planning on renting, consider the people you will be letting to. If you are buying for your own use, you might look for a property close to your clients and with easy accessibility for your employees in order to minimise travelling costs. Parking is an essential requirement for customers and employees, especially if you are looking at city centre properties.
Once you have chosen the right building, consider its condition. With the average lease lasting approximately 7.2 years, it’s important that it can be used effectively or rented out within a short space of time to maximise your investment.
Finally, you need to think about what you are going to be using the property for, as each commercial category has a different ‘use class’, which must be adhered to. If it doesn’t fit the bill, you’ll have to apply for planning permission to change uses, which can be costly and take a lot of time.
For information about commercial properties and advice on investing in them, visit our commercial website and blog at Engel & Völkers.