Commercial property investment tips for the first time buyer
20th March 2019
Investing in commercial property can be daunting, especially if it’s your first time. You want to ensure you pick the right property for the right price, so you can maximise your return whilst minimising your risk.
In 2016, the UK commercial property market was valued at £883 billion, representing 10% of the UK’s overall net wealth.
If you want to invest in commercial property, please take some advice on where to start, and read our five essential commercial property investment tips.
What is commercial property investment?
Commercial property investment refers to an investor who purchases a property to be solely used by businesses; and this includes (but is not limited to) offices, warehouses and retail stores.
1. What level of investment and return do you want?
Like you would when investing in a residential property, the first thing you need to consider is how much you can actually afford to spend on a commercial property – not forgetting any additional ongoing costs you’ll be subject to for the duration of the investment.
Once you’ve determined the maximum amount you can spend, you can begin your property search, to see the types of commercial property your budget can cater to.
You’ll also need to have a think about return on investment (ROI), and set yourself an achievable amount. Research average ROI in the areas you’re interested in, and speak to specialists if you’re not sure. Don’t set yourself an amount so high you won’t be able to achieve it – you need to be realistic here.
2. What type of commercial property do you want to invest in?
So the question now is, which one do you invest in? A good place to start is considering where your own particular interests or knowledge lies. For example, you may have experience in a specific industry, and understand the types of offices they’re looking for; so invest in those offices in a desirable location.
Often though, you may not have a specific idea or interest, and if that’s the case, don’t despair. Instead, speak to the experts – they can help determine what type of commercial property has the potential to be a worthwhile investment, and point you in the direction of lucrative opportunities.
Remember, obsolescence must be considered when making your choice. Industrial properties change very little in appearance over time, yet can still command consistent levels of rent.
3. Research your area
When you start your property search, you’ll need to consider where you want to invest. Rates will obviously vary from city to city; for example, in 2016, £2.4 billion was invested in commercial property in central London alone, with turnover increasing by 24% year on year.
Whilst London and Manchester carry higher costs, you may decide to invest in regional cities like Nottingham, Derby or Leicester, as properties will have lower price tags.
Once you’ve selected your chosen city, the research doesn’t stop there. Prices will also vary depending whereabouts in the city your investment is located. To determine where you purchase your property, you’ll need to think about what your potential buyers or renters will be looking for in a location.
City centre locations tend to have higher costs due to their close proximity to everything. Conversely, commercial property located in the suburbs can be cheaper, yet closer to transport links such as motorways, train stations… and have their own car parks!
4. Are you in it for the long haul?
One key commercial property investment tip is to consider whether you want the rewards to be immediate, or if you don’t mind waiting long-term.
For people who haven’t invested in commercial property before, it can often be seen as a way to “get rich quick”: in other words, snap up an opportunity, do it up, and then sell it on. However, this isn’t as easy as it sounds, and most commercial investments are held for the medium to long term.
It can be all-too easy to get caught up in the short-term, when actually, the long-term can be more lucrative. Remember that the property market isn’t exempt from seasonal fluctuations – something you need to bear in mind when you look at buying commercial property; and then again when it’s time to sell or rent.
This ties in strongly with our previous commercial property investment tip; because to make an educated decision about whether you want short-term or long-term benefits, you need to understand the ins and outs of the market you’re about to invest in.
We’d recommend you start your research by heading over to the government’s website, which lists a range of upcoming planning decisions in all areas across the UK.
Like every other commercial property investment tip; if you’re not sure which route you should take, it’s extremely helpful talking to someone who does, as they can give you advice on the local market.
5. How will you invest in the property?
So, you’ve now determined what type of property you’d like to buy in which city, you know how much you can afford to spend, and the approximate ROI you’d expect to see.
Our final commercial property investment tip is to consider how you’re actually going to invest in your chosen property. There are two ways to do so:
- Direct investment: This requires more capital than indirect investment, but you’ll essentially own the property – it could be a full purchase, with a mortgage, or via a SIPP. However, once you’ve made that initial investment, the financial rewards can be higher.
- Indirect investment: This requires less initial investment, but as a result, the return can be lower. Instead, you’ll buy shares in a company that invests in property.
Ultimately, this will depend on the amount you can afford, and the level of involvement you’d like to have in the commercial property investment process.
There’s no doubt that navigating the world of commercial property investment can be difficult – even more so if you’re a first time buyer. However, you don’t have to navigate the world of investment on your own.
We’re the East Midlands’ leading commercial property investors, and can assist you on your investment journey – even helping to acquire properties that will generate financial return for you.