Is a commercial property ever an investment?

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You might have thought that those who invest in commercial property are commonly those who do so to treat the property as an asset of part of a larger company, but while in the past this might have been true, an increasing number of small private investors are beginning to realise the potential of such an investment.  Those who have experienced the benefits of buy-to-let are now looking toward investing in commercial property because the advantages can be rather more attractive than those of investing in residential property.

 Although investing in a commercial property might seem a little too complex, with chartered building surveyors on your side offering their extensive experience in property investment, you wouldn’t have to worry if you were unsure about your acquisitions, maintenance and compliance roles, as they could offer their advice and expertise to help you every step of the way.  Here are just some of the advantages investing in a commercial property can offer compared to investing in a residential property…

Higher income

A commercial property will generally offer you a higher income compared to a residential property, mainly because the property will be more expensive, its value being related to its useable square footage, and the yield is often higher per square foot.  The more you pay for a commercial property, the more you can charge your tenants.  Although the value of a commercial property will increase at a slower rate than that of residential property, if you combine income with capital growth the return is likely to be significantly higher in comparison.

Long-term leases

The lease of a commercial property is agreed for a much longer period than the common six-month tenancy agreement of a residential property.  When a tenant leases a commercial property it is usually with the intention of staying for some time, so a lease of anything up to fifteen years is quite common, meaning there may be a lot less management involvement needed from the landlord or the agent, and the guarantee of a constant, flowing income.

Rent increase

With such long lease agreements, you might think that it would be impossible to ever be able to increase the rent, but in addition to a longer lease, it is accepted practice to review the rent every three to five years so than the income return on the property is kept in-line with price inflation.  Therefore, you can treat your commercial property as a real investment, almost like a pension, as you will always be making a return on your investment.

Reliable tenants

Commercial tenants are often thought of as more reliable as their livelihood depends on the property.  While a residential property owner might be liable to pay for repairs, which might incur additional costs, commercial tenants are often expected to pay for any necessary repairs during their extending tenancy agreement, depending on what is included in their contract.  The contract usually stipulates that the tenant must return the property as it was when they first began tenancy.

Due to the long-term leases and therefore consistent income and steady capital growth, a commercial property is a worthwhile, generally hassle-free investment.  If you are considering investing in a commercial property but would like further advice or guidance, contact Bradley-Mason LLP today for a free consultation and let us see how we can help you.


DISCLAIMER: This article is for general information only and not intended as advice. Each project has its own set of unique circumstances, all potential issues should be investigated by a surveyor on a case by case basis before making any decision.

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