How to invest in commercial property uk?

A common question in the finance sector is “How to invest in commercial property?” Although most investors are well aware of commercial real estate & the investment opportunities attached to it. Many still don’t know how to access commercial property investments.

 

In this article we will be looking into why commercial real estate is so popular, different ways you can get involved and finally what the routes to market are.

 

Key Considerations When Investing In Commercial Property

When investing in real estate they are several key considerations that need to be taken into account. 

 

Market Research

 

As with any investment product, due diligence is absolutely key. As part of this diligence you want to research the market, your research should include but not be limited to trends, vacancy rates, rental demand, comparable local properties and potential for growth in the area you’re interested in.

 

Location , Location, Location

 

Similar to residential property, location is very important to commercial real estate. 

 

When considering the purchase of commercial property, you will need to account for various factors such as population density, how close the property is to transport links, what local amenities there are and how often commercial properties in the same area are performing.

 

Property Type

 

Another big factor in your decision-making process should be the property type. There are so many options available when choosing commercial real estate, offices, industrial, retail spaces etc. Each of these property types will come with its own potential rewards and risks, when selecting a property type it’s advisable to select a premises that best meets your investment criteria and risk appetite.

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The Advantages of Investing in Commercial Property

 

Investing in commercial properties can have huge upside potential for investors. The most common reasons investors opt for commercial properties are:

 

 Potential for higher income from Rental

Commercial properties generally have a higher monthly rental amount than residential properties of the same size.. 

 

Diversification

 

Another core factor for investors is diversification, commercial real estate carries a different set of risks and rewards to residential property. By diversifying into commercial, you spread and therefore limit risk.

 

Long term tenants

 

Generally speaking, commercial leases are issued for much longer than residential tenancies. By retaining tenants for longer periods, you reduce the amount of time and money spent on marketing your property.

Diverse Property Investment Strategies

 

When investing in commercial real estate there are several routes to market. The most common way to invest is, to physically purchase a commercial property, This property is then rented out, ordinarily on a lease. Depending on the property type, the lease could be anywhere between 1 and 99 years. 

 

If you want to invest in commercial real estate but don’t have the will or the want to manage a property then there are still options available. You could purchase a property but relinquish control to a property management company. 

 

Another option is to invest in a property fund that specifically targets commercial real estate.

 

The final option is buy-to-let property investments which we cover in more detail below:

Buy-to-Let Property Investments

 

Buy-to-let properties have lost some of their allure over the last few years. The reason for this is that as interest rates and inflation increase, the amount of profit available on a buy-to-let has reduced substantially.

 

Buy-to-let property is ordinarily purchased with a buy-to-let mortgage, the idea being that the owner of the mortgage sees profit not only from asset growth but also receives some passive income from rents.

 

Unfortunately as mentioned above with the cost of goods and services increasing and mortgage rates rising. The propensity for high returns on buy-to-let investments has since declined.

Investing in Commercial Property Funds / Bonds

 

Investing in property funds or bonds can be very complex, it’s of paramount importance that due diligence is plentiful.  The best advice we can give is to always consult a professional bond specialist. 

 

Although using a brokerage or advisory service may cost you a small % of the costs, in the long term it can save you a huge amount of time, money and heartache.

 

Companies such as New Capital Link carefully screen every company that they work with, which means that they will only select companies with a proven track record that spans 10 years or more , their assets outweigh their liability and are liquid in a growth sector. Utilising the advice of a specialist will mean that you can rest assured that you are making the best possible investment choice.

Commercial Property Trends

 

The Q1 2023 RICS UK Commercial Property Survey shows an encouraging improvement in market sentiment. Only 50% of respondents now believe the market is in a downturn phase, significantly down from the 83% reported in Q4 2022. A positive shift is seen, with 25% of respondents thinking the market has hit its floor, and 21% believe it has started to recover.

 

Tenant demand in Q1 had an aggregate net balance of -3%, representing an improvement from -20% in Q4 2022, indicating a potential low point in the cycle for this metric. However, occupier demand remains weak, with retail at -23% and offices at -6% in terms of net balance. On the other hand, the industrial sector experienced growth, with the net balance rising from +6% in Q4 to +16% in Q1, although still below the levels seen in Q2 2022.

 

FAQ’s

Is commercial property a good investment in the UK?

 

Commercial property investment is widely considered one of the most stable and robust investment options in the world. But buying commercial property with the intention to let, is time-consuming and costly. Many investors will opt to invest in property funds or bonds to negate the time they have to spend managing the properties.

 

How to buy commercial properties in UK?

Before purchasing a commercial property in the UK, always seek the help of an experienced property specialist. Purchasing properties, for most people is the most expensive purchase they will make, so it’s vital you take the time to research the property’s performance history, stability and investment potential.

 

How do you make money from commercial property UK?

Making money from commercial properties can be done in a variety of ways, you could opt to buy and rent a property, apply for a buy-to-let mortgage or invest in a property fund.

 

What is a good return on a commercial property UK?

Returns on commercial property are dependant on a number of factors, these include but are not limited to size and location of the property, but also property type and requirement in the chosen location.

 

The average returns on commercial property in the UK differ between property types. Shopping centres produce a 7.5% yield, high street retail 6.75% and offices between 5-5.5%.

 

These figures are indicative and differ based on a variety of factors.

Property Bond UK

 

Property Bonds are popular with traditional physical property investors looking to diversify or simplify their income but are also still keen to protect their capital from volatility in the assets market.

 

If you are interested in investing in real estate and need a professional experienced advisor to help you navigate the finance sector. Then the experienced team at New Capital Link can help.

by Rachel Buscall

by Rachel Buscall

Co-Founder & Managing Director at New Capital Link. Having started her career in the financial sector, Rachel demonstrated a natural flair for entrepreneurship.

New Capital Link

Alternative investment specialists offering structured opportunities across the UK & Overseas.

New Capital Link is a boutique London-based introducer that offers unique UK & global investment opportunities worldwide.

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Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be very complex and high risk.

What are the key risks?

1. You could lose all the money you invest

If the business offering this investment fails, there is a high risk that you will lose all your money. Businesses like this often fail as they usually use risky investment strategies. 

Advertised rates of return aren’t guaranteed. This is not a savings account. If the issuer doesn’t pay you back as agreed, you could earn less money than expected or nothing at all. A higher advertised rate of return means a higher risk of losing your money. If it looks too good to be true, it probably is.

These investments are sometimes held in an Innovative Finance ISA (IFISA). While any potential gains from your investment will be tax free, you can still lose all your money. An IFISA does not reduce the risk of the investment or protect you from losses.

2. You are unlikely to be protected if something goes wrong

The business offering this investment is not regulated by the FCA. Protection from the Financial Services Compensation Scheme (FSCS) only considers claims against failed regulated firms. Learn more about FSCS protection here. https://www.fscs.org.uk/what-we-cover/investments/ or

Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker here. https://www.fscs.org.uk/check/investment-protection-checker/

The Financial Ombudsman Service (FOS) will not be able to consider complaints related to this firm or Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated firm, FOS may be able to consider it. Learn more about FOS protection here. https://www.financial-ombudsman.org.uk/consumers

3. You are unlikely to get your money back quickly

This type of business could face cash-flow problems that delay interest payments. It could also fail altogether and be unable to repay investors their money. 

You are unlikely to be able to cash in your investment early by selling it. You are usually locked in until the business has paid you back over the period agreed. In the rare circumstances where it is possible to sell your investment in a ‘secondary market’, you may not find a buyer at the price you are willing to sell.

4. This is a complex investment

This investment has a complex structure based on other risky investments. A business that raises money like this lends it to, or invests it in, other businesses or property. This makes it difficult for the investor to know where their money is going.

This makes it difficult to predict how risky the investment is, but it will most likely be high.

You may wish to get financial advice before deciding to invest.

5. Don’t put all your eggs in one basket

Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well. 

A good rule of thumb is not to invest more than 10% of your money in high-risk investments. https://www.fca.org.uk/investsmart/5-questions-ask-you-invest

If you are interested in learning more about how to protect yourself, visit the FCA’s website here: https://www.fca.org.uk/investsmart

For further information about minibonds, visit the FCA’s website here.https://www.fca.org.uk/consumers/mini-bonds