What is commercial property investment?
Commercial property investment has long been an important asset category for investors in both the UK and elsewhere.
Commercial property made up 13 percent of the total value of property in the United Kingdom back in 2018, up to the value of £883 billion, which is 10 percent of the United Kingdom’s net riches.
The commercial property sector can be multiple property types ranging from mixed-used retail units to office buildings, warehouses, storage units, leisure centres, shopping centres, schools, and also airport buildings or units within them. As a result, there is a lot of variety in what’s available in terms of investment opportunities. Commercial properties tend to be more dynamic than residential ones and have lower liquidity.
This commercial property market investment landscape has greater risks than residential real estate, but also provides higher returns in the long run.
There are two primary methods for making profits from commercial property.
- Rental income from leasing the commercial property to tenants over time
- Capital growth: An increase in property values leads to capital gains.
There are three main types of investment in commercial real estate. Investors don’t need to buy their own properties; they can instead put their money into commercial property funds with diversified, professionally-run portfolios of real estate.
Direct investments are obviously possible and have the highest maximum yields, but there is also much more involved than indirect ones and direct investments come with a more hands-on role and added responsibility.
Commercial property investing and residential property investing – the ins and outs and who comes out on top?
These are the advantages and disadvantages of investing in commercial property.
Commercial property is an excellent way to invest if you want to diversify your investments.
Property prices aren’t usually linked to other asset types such as stocks and bonds so they don’t normally follow the movements of these assets. They often move independently of them meaning they are not as easily affected by the stock market.
Commercial property tends to be more expensive than residential property but also tends to be more lucrative, especially in the long term.
These are the advantages and disadvantages of investing in residential property.
With the UK housing market continuing to increase, more and more people are considering residential investment opportunities. With average house prices in the UK exceeding £320,000 and average rents exceeding £1,000 per month, it’s not surprising that residential property has become an increasingly attractive investment option for both landlords and investors alike.
There are several factors to take into account when considering investing in residential real estate. While the short-term and long-term returns may be competitive, it’s important to remember that managing a rental property requires a lot of time and effort.
Commercial and residential property: which is the investment most suited to you and your needs?
Commercial properties usually need more upfront investment than residential properties do. Additionally, they require stricter loan requirements to obtain financing.
Tax laws have changed so they’re now even less desirable for people investing in residential properties in their own names rather than through limited companies.
Commercial properties tend to have higher initial costs, including buying prices and refurbishments, but they usually pay off with higher returns than residential properties.
Because commercial real estate investors typically deal with companies instead of individuals, they often face different challenges than residential landlords.
Commercial leases are more contractual, giving them added protection under the law than residential lease agreements where tenants can sometimes get away with property damage or can leave much easier altogether.
Commercial property tenants are usually responsible for maintaining their properties, which saves landlords time and costs.
Commercial real estate investments can offer a stable source of income with minimal outlay and with the right tenants/businesses using the property, it can run itself for the most part.
Is commercial property the right investment for you?
Does the long-term or short-term investment suit you best?
You need to think carefully before deciding which type of investment you’d prefer. One of the most common commercial real estate mistakes is thinking too much about today and forgetting about tomorrow.
You need to plan ahead when investing in real estate. Be aware of the seasonality of the market and know where to invest. What if there were plans to regenerate the site you’re thinking about? What would that mean for the site? Look up local planning decisions in your investment region.
What is your commercial property timescale?
When it comes to buying or leasing commercial properties, do you have a time frame in mind? Do you have enough money to support your timeframe or do you need to rethink your commercial property strategy?
Do you want immediate profits on your investments or are you ready to be patient until the right commercial investment opportunity comes along?
This is something you need to consider before you invest in commercial property because if you can’t afford anything to not go to plan or be postponed at all then this may not be the best option for you. Commercial property can be an extremely lucrative investment but it can also be an extended period of time before you get there. Keep this in mind when thinking about investing.
Which type of commercial property would you prefer to invest in?
How do you choose between different types of property investments?
You might be interested in investing in retail properties in a popular commuter town with excellent transport links, which is close to where you currently reside.
You must be knowledgeable in the industry you are thinking of investing in property for and have an insight into which types of workplace properties the industry may need this will increase your chance of gaining the ideal business or person to become your tenant.
You could consider investing in a small industrial unit on the other side of the country as this would be more affordable, and is handled by a management company saving you time and moving as you don’t need to travel to the property for any reason you only provide maintenance costs.
You could also invest in new office developments or warehouse development in a city that is rapidly growing and is attracting a lot of big-name corporations, getting in somewhere like this early can give you the upper hand and when big-name companies want to move into the city to compete for the market in that location you’ll be there ready to lease out your commercial unit or office space for a nice high figure. You might want to keep an eye out for regeneration projects. They could be good investments if they’re done at the right times.
Do you want to lease or buy?
Decide whether you would rather rent or buy the commercial real estate you’re looking to invest in.
Both options have their advantages and disadvantages; therefore, decide what is most important to you and seek professional advice to help you choose between them.
Once you’ve identified a potential investment, now’s the time to get expert property and legal advice so you know exactly what you’re signing up for and whether this particular investment would be best to rent or buy.
What is a good return when investing in commercial or industrial property?
Commercial yields tend to be significantly higher than residential rental yields.
Commercial real estate investment yields up to between 5% and 10%. Usually, residential properties deliver between 1% and 3%.
The reason for this variation in rental yields can often be associated with differences in lease terms and lease lengths.
Properties that are most likely to deliver high returns are those with the largest number of tenants paying to use the property – more tenants, more rental income.
These types of properties include apartment buildings, office developments, storage units, and convenience stores.
Why it is always good for you to talk to a professional before investing in commercial property.
Do you know exactly what you want you to want to invest your money in, where and what type of location, and how you’re going to finance your investment and come up with a deposit? Have you carefully studied the market to determine whether there is a good return on investment?
If you have some investment experience or commercial real estate knowledge, then maybe you already understand what to do next, so you’re ready to invest when you see a deal suited perfectly to you and your investment strategy.
If you don’t understand what to expect from investing in real estate, what kind of properties to buy, or how to finance your investments, then you won’t want to rush into anything without doing some research first. Talk to an expert in commercial real estate; they may offer better deals than you think, and consulting them is likely to maximize the returns on your investments.
We’ve already mentioned that there is a huge level of risk and responsibility associated with a commercial investment, which makes it intimidating for some people. So that’s where we come in, here at Cox & Co. our expert property team has extensive experience and can assist you at any stage on your commercial journey, so no matter what stage you are at, get in touch, we would love to hear from you and see how we can assist in making your commercial investment dream a reality!