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. 

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