Commercial investment property is a great option for anyone looking to grow and diversify their investment portfolio. Typically, commercial property can generate longer, more stable leases; higher rental yields; and greater capital growth than residential properties. The initial capital outlay is usually higher than in residential markets, but the returns can be fantastic if you have access to the necessary funds and a good eye for spotting an opportunity.
What kind of commercial properties make the best investments?
The best kind of commercial property investment for you depends on your circumstances, resources and goals.
Industrial properties include warehouses and factories. These are usually large specialised properties, so can command a high purchase price. They offer a sound investment, as the needs of most people renting such properties are unlikely to change in the long-term. If an industrial property has plenty of floor space and good transport links, it is likely to be a lucrative investment. Leases on these properties are typically the longest of any commercial property type. Even as manufacture decreases in the UK, imported goods increase, so despite the closure of factories and manufacturing plants, the need for warehouses and distribution centres means the industrial property market remains buoyant.
Offices also tend to generate long leases – typically around ten years. Office buildings can offer very secure investment prospects in that a large building can be rented to several different companies at once, reducing any risk involved with vacancies. Rental yields are generally high for this type of property. Many offices are rented by civil servants and government departments, which means that the lease is not dependent on economic success. In today’s economic climate, this can be a great comfort to investors. The downside of office buildings as investments is that their value is linked to the ability to let them. If development, such as the building of a major road, in the surrounding area means that they are in an undesirable location, the resale value can drop to almost nothing.
Retail and Leisure
Retail and leisure investments include shops, restaurants, hotels, sports centre and any other similar property. The biggest advantage of investing in this kind of property is the high rental yields that tend to be generated. These are also the highest risk commercial properties, especially in an unstable economy. These kinds of businesses are more likely to fail, meaning the investor has to find new tenants. The risks can be worth taking though, as large rewards are possible. These are good investments for experienced investors with a strong portfolio offering a cushion should things go wrong.
Should I invest through a commercial property fund?
Property funds can be a great way to invest in commercial property. A property fund works by pooling money from several investors and putting it towards building an investment portfolio. Property funds can either invest directly in bricks and mortar ventures, or in development companies. Investing through a commercial property fund is a good option for any investor with limited experience and knowledge, who wants to make the move into commercial property. The beauty of property funds is that they are a completely hassle-free option. You front the capital and it is invested on your behalf.
Are there tax advantages associated with investing in commercial property?
There can be significant tax advantages to investing in commercial property. There are many ways in which commercial property investment can provide tax benefits. The best idea is to hire a professional financial advisor who specialises in this area. They will be able to offer expert advice on all the opportunities available to you.
Is additional due diligence required on commercial properties?
Due diligence should be carried out on all properties and companies involved in investments. Commercial investment property may require a higher level of due diligence, because the value of the properties is tied to their desirability. You need to carry out more in-depth checks on the economic structure of the surrounding area and be aware of how future development could affect the use of the property. For instance, if a large industrial property is in an area of high employment – it is unlikely to be a sound investment. Companies that use large industrial properties such as warehouses and factories usually require a lot of unskilled workers based within a proximity. If an area has risen in employment ratings and most of the people in the area are now skilled workers, it is unlikely that an industrial property will be easy to let out.
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