There are a number of options if you are looking to buy commercial investment property for sale in the UK. These include traditional real estate asset classes such as offices, retail, leisure, or industrial property. Commercial property investment is a popular investment option among investors and offers attractive gains in terms of return on investment.
Commercial property includes a range of types, from high street shops to large out-of-town complexes. Spaces such as factories, industrial units, and warehouses as well as leisure establishments, restaurants, hotels and gyms, and even car parks come under the category of commercial property. There are plenty of opportunities in this sector as a number of commercial investment properties come to the UK market every day.
Commercial property investment
There are a rapidly growing number of property insiders who are optimistic about the commercial property market. They see commercial property investment as an attractive medium-to-longer-term opportunity that is worth serious consideration.
The head of global strategy at Standard Life, Andrew Milligan OBE, believes that, in the future, property will yield bigger returns than shares.
At the start of the global financial crisis, UK commercial property assets suffered losses between 2008 – 2009, as commercial property prices dropped as much as 44 percent. However, the market recovered relatively quickly, sparking interest in the commercial property sector as investors sought reliable investments.
Despite some investment experts arguing that now is not a good time to buy commercial investment property for sale in the UK, there is a growing demand for quality UK commercial property from both within the UK as well as international investors.
Benefits of commercial investment property for sale in the UK
The UK traditionally has a longer lease structure for commercial property compared with many other countries across the world, and this can prove to be highly beneficial to investors as it provides more security over a longer-term.
While terms for commercial lease have tended to fall from the previous duration of 25 years, the average leases in the UK are now around eight years, meaning extended regular monthly income for investors.
Due to the nature of commercial buildings, including their size and potential, investors can expect higher rental returns compared with typical residential properties.
Commercial property usually delivers a stable income over a specified term, but it also offers the additional benefit of capital growth.
Many property investment specialists talk about the reliability in “bricks and mortar” investments such as commercial property. They argue that commercial property investment offers benefits that other indirect investment asset classes struggle to provide.
Direct ownership of commercial property offers a number of advantages as it is a tangible asset that can be modified, renovated, redeveloped, and reviewed as the market changes, giving investors better control when responding to shifting trends and occupier needs.
Commercial tenants are typically responsible for building maintenance and repairs in the UK property market, especially in the case where a full repairing and insuring lease (FRI lease) is in place.
This is in contrast to residential property investments where the responsibility for building maintenance and repairs lies with the landlord.
However, it is important to choose commercial tenants wisely and an investor should seek a tenant with a good reputation and strong, reliable finances to avoid the risk of the tenant defaulting on their financial and other obligations during the lease term.
Risks and other considerations
The higher the financial stakes, the bigger are the risks, and this holds true for commercial investment property for sale in the UK when compared with residential property investments.
Investment in this sector often requires significantly larger capital and therefore it is necessary that potential investors thoroughly research the market, location, investment types, potential returns, and tenant demand before buying a commercial investment property for sale in the UK.
Location is definitely the most important factor when planning to buy commercial investment property for sale in the UK.
Location can be the main thing that will make the difference between high returns on investment and a loss-making venture. Choosing the wrong location for commercial investment property for sale in the UK may result in lower than anticipated yields as well as reduced rental and capital growth opportunities in the future.
Lease covenant strength
Commercial property investors should also note that the strength of a tenant and their lease can significantly impact the investment value of a commercial property.
This type of lease strength is commonly referred to as “covenant strength”, which is used in property circles to indicate the strength or quality of a commercial tenant.
A FTSE 100 company would typically be a very strong tenant, much more likely to keep to its lease covenants, pay its rent on time, and not break any of its lease obligations.
However, if a tenant’s credit rating deteriorates during the lease term this can affect the rental income as well as the future value of the commercial investment property for sale UK.
It is necessary to research the reliability of potential tenants before signing lease agreements.
It is necessary that investors in commercial property know their market, including performance issues related to the wider market.
The financial crisis of 2008 proves that while the “sector isn’t volatile” it can still fall victim to economic downturns.
Investing in commercial property
Investing in commercial property can be done in many ways and investors should consider all of these routes before proceeding with commercial investment property for sale UK.
These include the direct or indirect investment approaches.
Direct investment involves the purchase of the physical property assets, while the indirect approach involves investing in REITs, stocks and shares of companies that invest in property and real estate, property index derivatives, trust companies or bonds of corporate property organisations.
Direct investment in commercial property:
- An investor should decide whether they are in a position to invest directly in property and their risk-tolerance level.
- It is not usually a suitable option for smaller private investors due to the high costs associated with this type of investment.
Indirect property investment
- Indirect investment is considered a less risky option as the capital involved can be much smaller.
- The indirect investing approach is also considered a low cost and easy way to gain exposure to a range of commercial property investment opportunities.
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