Are commercial properties a good investment opportunity?

There are many reasons why you might be thinking about investing in commercial property. Perhaps you’re a landlord who has so far specialised in residential lettings, but want to diversify your portfolio. Maybe you’re looking for a space to house your small business, or perhaps you’re simply thinking about new ways to invest your money.
 
Whatever your reason, the first question you’ll probably have is: are commercial properties a good investment opportunity? This handy guide contains advice from how to buy commercial property, to taking out commercial property insurance – helping you to decide whether this type of investment is right for you.
 

What is considered a commercial property?

 
Commercial property is essentially an umbrella term used to describe physical premises used for commercial purposes. A Zoopla guide explains that the commercial property market is mainly made up of:
 

• Offices – i.e buildings used for professional, commercial or bureaucratic work.
• Retail – such as shopping centres, shops, supermarkets and out-of-town retail warehouses.
• Industrial – including factories and warehouses.
• Leisure – for instance gyms, cinemas, hotels, restaurants and pubs.

 
Other commercial properties include things like schools and petrol stations.
 

What are the benefits of investing in commercial property?

 
A smallbusiness.co.uk article explains that with any big investment decision, it’s vital to weigh up the costs with the benefits before making a final decision. It shares five potential benefits of investing in commercial property:
 
1. A steady income stream
 
If you decide to lease the property, you’ll get rent payments from tenants – and you’ll keep getting these payments up for as long as you rent out the property, which could be decades. In this sense, commercial property can be a great way to generate a long and steady stream of income, and is less risky than other investments like stocks.
 
2. Spread risk
 
If you’re a seasoned landlord, you’ll know that diversifying is crucial to minimising losses. If you currently invest solely in the residential market, a single hit on that market could leave you in dire straits. So, spreading your investments to include commercial property could provide you with a decent financial safety net.
 
3. Capital growth

Generally speaking, property is considered a good investment as values usually rise over time. This means that you could end up making decent returns on your initial investment, on top of the income you get from renting the property.
 
4. Good tenant relationship
 
The relationship between you and your commercial tenant will be business to business, so it tends to be more professional compared with a residential tenant. It can also be more practical to rent to a commercial tenant – for instance, they may only occupy the building during typical daytime business hours, meaning no after-hour maintenance callouts!
 
5. Creative freedom
 
If you run a business in a space you own, then you’ll have more free rein in terms of what you can do to the building. You’ll be able to make as many modifications as you like, because ultimately, that property is yours! It’s usually easier to get planning permission for change of use of a commercial building than a residential one, too.
 
Of course, any type of investment carries risk. Commercial properties are exposed to economic risks just as much as residential properties are, meaning the value of your investment could fall as well as rise. It also requires a significant upfront investment, as with a residential property, while managing the property can take up a lot of time, too.
 

How do I buy commercial property?

 
If you’re taking your first step on the commercial property ladder, the process has some similarities to buying a residential home. Zoopla shares a comprehensive guide on the process, but here’s a recap of its points:
 

1. Find a property. Identifying the right property involves careful consideration. You’ll need to think about things such as location, size and type of property, and whether its freehold or leasehold (and the associated implications). There are specialist commercial estate agents and you can search properties on sites like Zoopla.
2. Work out costs. It’s not just the deposit you need to think about. There are lots of costs linked with buying a commercial property, including advice fees, Stamp Duty Land Tax, VAT, commercial property insurance, and costs associated with refurbishing and fitting out the space.
3. Get a business loan. You might need a loan to support your buying position – make sure you compare lots of quotes and seek advice if you feel you need it.
4. Make an offer. Offers are usually in written form and made to the seller’s commercial estate agent. If it’s accepted, you should arrange for a local authority search to be carried out – this will flag issues that would have otherwise gone unnoticed and could have caused you a big headache later down the line.
5. Exchange contracts and complete. This is when you’ll need a solicitor’s legal assistance. They’ll draft a document describing the main points of the sale agreement when your offer has been accepted. Contracts will be exchanged when both parties are satisfied with the contract and completion will come when all the documents are signed, dated and delivered.

So, are commercial properties a good investment?

 
As Knight Frank explains, in a world of lower returns and higher volatility, commercial property remains a sound investment option – provided you seek good advice.
 
If you’ve weighed up the pros and cons and have decided to invest in commercial property, taking out quality commercial property insurance is a must. Insurance Choice Commercial arranges policies that cover a wide range of property types, and offers bespoke policies that can be tailored to the specific needs of your business.
 
The types of cover you can get through Insurance Choice Commercial include:
 

• Buildings insurance
• Employers’ liability cover
• Contents cover
• Loss of rental income
• Goods in transit cover
• Business interruption

 
Rest assured you’re in safe hands with Insurance Choice Commercial – the specialist firm has been providing commercial property insurance for more than 20 years. The company offers flexible payment options, meaning you can pay your premium in one go or spread the cost over the year. Get a quote today!