I’m going back to basics this week and addressing the question What’s Commercial Property?
(Did you know that’s the most googled thing about commercial property)
Here’s the basics… want to know more plus go through case studies and investment hotspots listen to my podcast here
The Definition of Commercial Property
So, let’s start with the definition. Commercial property basically covers any property that isn’t meant for residential living – you know, no cozy family homes here. Think about properties that could generate income, often valued using investment methods, not just bricks and mortar. In a nutshell, if it’s not a single-family dwelling, it’s likely commercial property.
Now, hold on! Commercial property isn’t just about shops and offices. It’s a big umbrella that includes retail spaces, office complexes, warehouses, leisure spots, hospitals, schools – you name it. It even stretches to things like high-profile advertising spaces or quirky telephone boxes. Even boat moorings count if you’re renting them out!
Commercial v Residential
So, what sets commercial property apart from residential? Residential properties are all about strict tenant laws, aimed at keeping families safe and sound. On the flip side, commercial property operates under the Landlord and Tenant Act 1954, Part II. This act dances to its own tune when it comes to commercial leasing in England and Wales. And the valuation game? Well, it’s a whole new ball game. Commercial property’s value is closely tied to its income potential, often using investment valuation methods.
Why Commercial Property Investment?
But what’s the big deal with commercial property investment? For starters, it’s less bogged down by regulations compared to its residential counterpart. Tenants shoulder more responsibilities – they’re the ones maintaining the space and keeping the business wheels turning. Leases tend to be longer, like five to ten years, offering stability for investors. And here’s a gem: you can boost property value by reworking lease terms – longer leases, higher rent – without shelling out for massive developments.
Oh, let’s not forget – commercial property is all about rolling with the trends. Every five years, the market shifts its style. Remember those big department stores? Yeah, some are making way for smaller, versatile spaces. So, you gotta be ready to pivot!
Finance
Hold up – before you dive in, let’s talk finance. Interest rates for commercial properties dance to a different tune, usually pricier than residential rates. When you’re valuing, think income streams. The stronger, the better. But here’s a cool trick: longer leases mean more stability, and that can pump up your property’s value. Plus, tenants often cover maintenance and other costs, so you’re mostly dealing with mortgage payments.
Why invest in commercial property, especially when news might say the property market’s on a roller coaster? Well, I’ll tell you why I’m in. First off, killer deals are still out there, promising yields of 8, 9, even 10 percent. And guess what? You don’t always need fancy renovations to up your property’s value. Longer leases, higher rent – it’s like a secret recipe.
Now, about those market trends. Keep an eye on those yield guides from the big shots like Knight Frank. They spill the beans on market shifts. Remember, higher yields mean riskier properties. Don’t be scared though – commercial property can swing up as easily as it can slide down.
The Right Investment Location
location, location, location. Places with year-round tourism or bustling universities tend to weather storms better, like a Spa town, York, Cambridge, Oxford. And local dynamics matter. If your area’s getting a facelift, you could be looking at a property goldmine.
I’ve alluded to Central London which will hold its value as will Bath we’ve not really seen much change there. If you look at somewhere like Harrogate in Yorkshire, we didn’t see the yields change there yet.
If you are in a spa type town or you’re in a tourist location that has tourists all year round.
Research what’s going on in the local area.
How can you find that out? Well, use websites, property data websites such as EIG auctions, have a look at what’s going on in the auctions and see where yields are selling or what’s selling at what yields.
Lets Recap the Key Points
- – According to recent data, commercial property yields typically range from 5% to 12%, outperforming many residential investments.
- – Commercial leases tend to be longer, with average terms of five to ten years, offering stability and consistent income.
- – In prime locations like Central London and university towns, commercial property markets remain resilient despite broader economic shifts.
- – Market sentiment indicators, such as the Knight Frank Investment Yield Guide, provide insights into changing market dynamics and investor sentiment… make sure you’re using both macro and micro trends. Simply the trends on a UK wide basis and the trends on a local basis which you will find on EIG Auctions, Edozo and Costar
