Exploring Commercial Property Investment in the UK

 

The coronavirus pandemic has hit many industries in the UK hard over the past year. The enforced closure of millions of retail outlets, pubs, restaurants and other non-essential businesses in particular has had a ripple effect that has affected not only businesses, but the wider commercial property investment industry. As we begin to ease out of the third and hopefully final lockdown, there are still many challenges to be overcome in terms of commercial property.  

Data shows that the commercial property market was one of the sectors that suffered the most throughout the bulk of the pandemic, with retailers and offices closed indefinitely for most of the year. As the light at the end of the tunnel slowly gets brighter, many are now asking if commercial property investment can still be profitable.  

Zuneth Sattar is keeping a close eye on the situation, as the owner of a business that deals in both residential and commercial properties in the UK. The infographic attachment looks at some of the UK’s top cities for commercial property investment outside of London prior to the pandemic. 

Commercial Property Market 

According to the British Property Federation, the commercial property market in the UK is valued at approximately £900 billion and accounts for around 13% of total property value in the country. More information about the BPF is detailed in the short video attachment to this post.  

Commercial property covers a diverse range of property types, from office blocks, warehouses, retail outlets and restaurants, to car parks, industrial complexes, and any other property housing a business. Prior to the onset of the pandemic, many investors were turning to commercial property as a safer bet than buy-to-let residential properties following the Brexit referendum.  

As 2021 gets underway, those same investors are now looking at whether this is still a viable option. 

Rental Income 

Former buy-to-let investors may turn to commercial property as the investment has many of the same properties and advantages. 

Commercial properties are usually let on a long-term lease, meaning the investor has a regular income to rely on as well as any profit made from increases in property values between the time of purchase and the time of sale.  

Retail property leases typically offer the investor a higher yield than residential rental properties. The leases are also often skewed more towards the renter rather than the owner in terms of who is responsible for ongoing costs such as repairs and maintenance, meaning lower overheads.  

However, the commercial property market is also far less liquid than the residential market, meaning investors have a higher chance of being stuck with unprofitable properties for longer. 

Types of Investment 

There are two main categories of investment for commercial property in the UK: direct and indirect investment. These can be further subdivided but essentially, investors can choose to purchase a property individually, or they can choose to invest in a fund that offers shares in property investment. Direct investment may also take place through a fund but the terms of the investment are different to indirect funds.  

Direct investment property funds work in the same way as direct investment but provide the investor with access to a broader portfolio of properties through shared ownership. Indirect property funds are based on shares in publicly-owned companies and therefore subject to the vagaries of the stock market. 

The embedded PDF explores some of the different types of investment options for commercial property in the UK. 

Property Investment: Defining Flipping

UK Government Announces New ‘Right to Regenerate’

 

In mid-January 2021, the Ministry of Housing, Communities and Local Government (MHCLG) published a consultation seeking views from the public on the UK Government’s new 'Right to Regenerate' proposals. Under the proposals, the public can turn vacant plots and unused buildings into community spaces or new homes. The right also covers publicly owned (and unused) social housing and garages, extending the property range the public can transform. Public bodies that own vacant or unused land and have no clear plan for its use would be required to sell it under the right. 

While making the announcement, Housing Secretary Robert Jenrick said the Right to Regenerate was the government's way of helping communities to make better use of available and derelict resources, with the right expected to cut the red tape associated with these efforts. He also noted that unless there is a good reason not to sell land, this option would be the default one to enable public land to be used for the greater good. 

The Chief Executive of the National Community Land Trust Network, Tom Chance, welcomed the proposal, noting that it would help communities turn neglected assets into usable resources. Mr Chance also highlighted how access to land at affordable prices was a barrier for many community land trusts in the country. The new right could make it easier for communities to play a leading role in changing this situation. Ian Harvey, the Executive Director of Civic Voice, saw the proposal as a great step forward in helping communities implement viable ideas for empty land. 

The Right to Regenerate could benefit members of the public, including property developers such as Zuneth Sattar, who wish to turn unused spaces into housing options that help the community. Mr Sattar has recently broken ground on the development of a block of flats and looks to make this type of work the ultimate goal of his property business. 

The Value of Research in Property Investment

Public Consultation 

The public land that the Right to Regenerate seeks to address includes land and property owned by English borough, district and county councils, development corporations owned by local authorities, combined authorities, and other bodies such as police forces. The consultation period (which was open until the 13th March 2021) helped clarify issues such as the definition of underused or unused property, the range of public bodies covered by the right, a potential right of first refusal for the person making the first request, and transparency requirements for the entire process. 

The Right to Regenerate is the government's attempt to revamp the current 'Right to Contest,' a similar scheme that allows members of the public to apply to the government to sell a property that is underused or can have a better economic impact. 192 requests have been made since 2014, with the majority focusing on small plots of land. Additionally, those who make the request don't receive the right of first refusal before the property goes on the open market. This, the ministry points, is among the main reasons why members of the public are hesitant to use the right in its current form. 

Encouraging the development of brownfield land is among the government's goals in proposing the new right, making it easier for the public to challenge public organisations and councils to release land that can be put to better use. In reality, a member of the public with a council-owned plot of land at the back of their residence could use the Right to Regenerate to make a request and potentially get the right of first refusal to purchase the plot and redevelop it. 

Additional measures to be deliberated upon during the consultation period include requiring councils to submit quarterly reports on preliminary enquiries, producing physical and electronic notices when requests are made, and publishing all requests (and their outcomes) on councils' websites.