A Guide To Finding Commercial Property Investment Opportunities
Oct 4 2018
Whether or not you are considering investing in commercial property for the first time or are a seasoned commercial property investor, this guide will be a helpful tool. Individuals will also benefit from current insight into the market, revealing the latest commercial property investment opportunities.
Perhaps you are primarily asking ‘what is commercial property investment?’ Alternatively, you may need assistance identifying commercial property investment opportunities. The contents page will help you navigate throughout the guide to answer questions that are relevant to you.
An investor who purchases a property solely for businesses is known to be investing in commercial property. For example, a commercial property could be used for industrial, leisure or office purposes. Commercial real estate is bought with the intention to house businesses and generate a financial gain. Review previous commercial property trends to gain further insight into commercial property investments and look out for success stories as well.
As with all investments, there are benefits and disadvantages to both avenues of property investment. Due to fear of a no-deal Brexit aligned with memories of a crashing market, it is imperative not to make hasty property investments. As such, we included the advantages and drawbacks of residential and commercial property investment.
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Residential property investment is popular among the novice and experienced investors alike. As less capital is required upfront, residential property is often a way into property investment. Of course, many individuals are also familiar with the buy-to-let route and know the market of their area. However, investors shouldn’t be put off by the unknown, as there are many commercial property investment opportunities.
Additionally, investors can add value to their property over time. For example, add bedrooms to increase their monthly income. This may also increase the property’s resale value, ultimately creating profit. Therefore, this option often appears more feasible and appealing.
On the other hand, residential properties are easily impacted by the market. As the length of a lease will be short, often residential properties are liable to increased agency fees, time investment and a shortage of cash flow while unoccupied. Ultimately, the return on investment is lower than commercial properties.
Commercial property requires a more significant monetary investment, but in turn, offers higher dividends. However, there are many funding options and ways to invest in commercial property. Investors will also have increased security due to lengthier leases and the opportunity for diverse investment.
Another benefit for investors is that they are usually exempt from VAT on commercial properties. Additionally, investors do not have to pay stamp duty if they bought their property under £150,000. Whereas residential and mixed-use properties will be subject to fees. Of course, there are also ways you can add value to your commercial property.
Of course, investing in commercial properties has its fair share of challenges and drawbacks. For example, this type of investment requires significantly more capital, which, by nature, can come with a higher level of risk. What’s more, commercial property investments are costlier to maintain.
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Residential properties are excellent for first-time investors, can be beneficial for a faster turn-around and renovated for a higher resale price. Whereas commercial properties pave the way for exceptions on specific regulations, offers significant ROI and are a stable long-term investment.
The Independent recently reported that the current housing market is struggling and does not appear to have improved throughout the year. Whereas recent reports, surveys and forecasters have indicated opportunities if you are buying commercial property in 2018. However, both avenues have an element of risk.
For this reason, it is wise to consult a specialist from a property investment service. It is essential to seek advice regarding the current market and specific commercial property investment opportunities that are catered to your budget and goals. It is worth knowing what to consider when investing in commercial property.
Investors are spoilt for choice in terms of the types of commercial property investment opportunities. It is helpful to know what commercial properties are popular when choosing your investment. The following seven categories should shed some insight into the types of commercial properties that are available to you.
- Land developments
- Health care
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It is always worth reading which commercial properties in the pipeline. Some commercial property investment opportunities include:
Leisure: Hotels have become a commercial property investment opportunity as the devalued pound attracted tourists. The number of tourists in 2017 increased by 8% compared to 2016. Forecasters have continued to signify that the hotel industry is remaining strong in 2018.
Warehouse Sector: As per a recent report, the warehouse sector has been identified as an opportunity for investors. However, there has already been a significant take-up of over 11 million square feet throughout the first quarter, and another 7.7 million on its way. While delivery may initially be slow, the warehouse sector is still in high demand.
Retail: Outlet centres and resale properties have become another one of the commercial property investment opportunities within the retail sector of commercial property investment. However, shopping centres are continuing to suffer within the investment market, and retail overall has suffered, with little hope for recovery in the near future.
Healthcare: Overall, forecasters have indicated that the healthcare sector remains in good shape. Thus, plenty of investment opportunities are available in this sector. For example, renting out F1/D1 properties (now referred to as use class F1, as well as some elements of use class E - read more about the new use class changes here), including NHS primary care centres, could be an excellent opportunity for investment.
Land: Within the first quarter of 2018, there has already been a 4% increase in urban land. There is scope for favourable investment is populated with London commuters. However, Brighton and Coventry have also been identified as suitable investments for land. While build-to-let has been popular, the smaller sites have not been in demand.
Flex: Knight Frank identified that coworking spaces increased by 48% in 2017. As such, Essensys conducted a worldwide survey to evaluate the profitability of these projects. Their findings revealed that 40% of these coworking spaces were profitable, which had increased from previous years. It is no surprise that so many companies are considering a flexible working space. As such, there is also an opportunity for investors.
In July 2018 the average yield on commercial property was 4.56% which was equal to October’s levels in 2017. While this can be helpful to gauge the market, research before an investment should be specific and thorough.
When seeking advice, always check the company’s case studies, which will shed light on the company’s success rates. Additionally, you can determine the types of investments that the company handles. This is advisable before discussions with their specialists.
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Start by writing down your annual rental income and deduct all of your annual expenses. All vacancies or loss of income should also be deducted from your annual rental income. After this calculation, divide that number by the commercial property value. Finally, multiply your total amount by 100 to discover the yield on your investment property.
It is very straightforward to calculate the yield on your commercial property investment. However, the difficulty often arises before making an initial investment. While one can look to similar properties within the area, we encourage prospective investors also to seek professional one-to-one advice.
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Financing commercial investment property may seem daunting for some first-time investors. However, there are many funding options available for all kinds of commercial property investments. Whether you are investing in storage boxes or taking advantage of the hotel market, it will be beneficial to review the following funding options:
- Commercial mortgages tend to run between 5 to 25 years and will be combined with an amortisation period to enable the lender time to pay off their loan. A commercial mortgage can be useful if you need additional capital to finance your initial purchase.
- Portfolio finance is a good choice for a seasoned investor who has already acquired a portfolio of rental properties. The benefit of this long-term route is that an investor can merge all of his/her loans into one.
- Mezzanine finance is a combination of debt and equity funding. While perceived to be complex, this flexible route often attracts investors who don’t need to take out a loan. This is partially because the mezzanine financing can escalate the initial rate of return.
- Bridging finance is a temporary route for quick cash. A bridging loan is used in the interim of forthcoming capital. This type of loan is known to have steep interest rates but is a beneficial solution for investors needing prompt funding. Investors should consult a specialist before hastily choosing this type of loan.
- Property development loans are short term solutions for extensive refurbishments as well as new builds. This option is often favoured by investors buying land for large commercial projects and renovations as the lenders will evaluate the future value of the development. As such, this financial route appeals to the visionary.
This list is not exhaustive; however, it does indicate the extent of options available for financing a commercial property investment. For example, some investors will find an auction more beneficial. For a comprehensive overview, you can contact us with your enquiry and our investment team will be in touch.
Each of these loans will have benefits and disadvantages, thus igniting many topical questions. Possibly, organised investors will be thinking ahead and even asking questions such as, “how do lease renewals work in commercial property?” Of course, you may be able to reinvest your funds after selling commercial property that you previously owned.
You are not the only investor considering whether a property is a good investment. After all, Brexit throws up many uncertainties with the potential to sabotage your investment. However, this disruption is paired with bargain investments. What is more, in 2017 alone, Europe's commercial property market was the strongest since the financial crisis. When care is taken, the property is a good investment.
When it comes to business investments, are these commercial property investment opportunities worthwhile? Commercial property is definitely a good investment when the right opportunities are optimised. Particularly as it has the security of longer-term leases and provides a higher return on investment. Yet, commercial property is a costly affair. You can keep up-to-date through our commercial property news.
As significant capital is required up front, it is especially important to consult a specialist with an excellent track record. An investment adviser will evaluate the market and relevant commercial property investment opportunities tailored specifically to you. You may also want to learn these ten tips before purchasing a commercial property.
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