The recent recession and credit crunch has had a strong adverse affect on commercial property. With increasing numbers of vacant premises and decreasing property values, investing in this sector has been tough over recent years. However, figures from the Investment Management Association in late 2010 showed that the commercial property recovery may have begun. Values and interest are rising as investors return to this sector.
The commercial property market, like all markets over the past three or four years has seen its fair share of turmoil. Now we appear to be seeing the start of a recovery in the sector, it is probably a good time to look once again at the reasons for investing a commercial property...
Businesses understand that the property they inhabit is often their first impression: You will know this from your own experiences but if you visit a shop or an office and it looks shabby and uncared for then you are immediately given the wrong impression. An impression the business will find it hard to recover from - so in the main business tenant keep their property, whether a shop or office, in a good a condition as possible. In general businesses understand the first impression rule and as such are more likely to maintain and sometimes improve your property to reflect them as a business.
In many cases (and obviously dependant on the letting agreement) commercial tenants are required by their letting agreement to fully maintain and repair the property they are letting. This differs to renting a house out, where you as the landlord are required to deal with the wear and tear issues, maintenance and other items such as the gas and electrical equipment inspections. Accountability for such items will normally fall on the business in a commercial let.
Commercial property leases are longer: Commercial property leases tend to be between 3 and 20 years. It is not unusual for a tenant to sign a least of five to ten years. This gives you the security of a long term tenancy and the business gets the security of establishing a firm base. Compare this to residential tenancies which typically run for between 6 and 12 months, leading to much greater uncertainty.
Your tenants are less likely to bolt: As a residential landlord myself I know the problem of turning up at a property and finding the tenant gone. Ok so I have the 1 month deposit but it is a real pain, the deposit probably covers the repairs but not the time the property stands empty whilst I find another tenant. With commercial tenants the usual period of notice is half a year or in some cases more. This obviously helps maintain the occupancy level of the property and reduces the fluctuations in rental income.
Commercial mortgages are still very much available, and so long as you have the right funding to put down a deposit it is much easier than a buy to let. There are also still many lenders who are offering commercial mortgage contracts compared with fewer offering buy to lets.
You can buy using a commercial mortgage: Trying to borrow the money you need to buy a residential 'buy to let' property has become increasingly tough over recent years. Many lenders have withdrawn from the buy to let market and those who remain require higher deposits and more extensive proof of earnings.
Commercial Let Rental Income Is Higher Than Residential: Commercial properties often attract higher rental income than residential property, making them more favourable to investors. Income is still usually monthly as with residential which is also attractive. You are also entitled to review the rent annually so that you can increase rent in line with current market conditions.
As commercial property prices begin to recover, investors are steadily going returning to the commercial sector. So, with commercial mortgages available and business property offering many capital growth and income opportunities, is it time for you to consider commercial property as an investment?
The commercial property market, like all markets over the past three or four years has seen its fair share of turmoil. Now we appear to be seeing the start of a recovery in the sector, it is probably a good time to look once again at the reasons for investing a commercial property...
Businesses understand that the property they inhabit is often their first impression: You will know this from your own experiences but if you visit a shop or an office and it looks shabby and uncared for then you are immediately given the wrong impression. An impression the business will find it hard to recover from - so in the main business tenant keep their property, whether a shop or office, in a good a condition as possible. In general businesses understand the first impression rule and as such are more likely to maintain and sometimes improve your property to reflect them as a business.
In many cases (and obviously dependant on the letting agreement) commercial tenants are required by their letting agreement to fully maintain and repair the property they are letting. This differs to renting a house out, where you as the landlord are required to deal with the wear and tear issues, maintenance and other items such as the gas and electrical equipment inspections. Accountability for such items will normally fall on the business in a commercial let.
Commercial property leases are longer: Commercial property leases tend to be between 3 and 20 years. It is not unusual for a tenant to sign a least of five to ten years. This gives you the security of a long term tenancy and the business gets the security of establishing a firm base. Compare this to residential tenancies which typically run for between 6 and 12 months, leading to much greater uncertainty.
Your tenants are less likely to bolt: As a residential landlord myself I know the problem of turning up at a property and finding the tenant gone. Ok so I have the 1 month deposit but it is a real pain, the deposit probably covers the repairs but not the time the property stands empty whilst I find another tenant. With commercial tenants the usual period of notice is half a year or in some cases more. This obviously helps maintain the occupancy level of the property and reduces the fluctuations in rental income.
Commercial mortgages are still very much available, and so long as you have the right funding to put down a deposit it is much easier than a buy to let. There are also still many lenders who are offering commercial mortgage contracts compared with fewer offering buy to lets.
You can buy using a commercial mortgage: Trying to borrow the money you need to buy a residential 'buy to let' property has become increasingly tough over recent years. Many lenders have withdrawn from the buy to let market and those who remain require higher deposits and more extensive proof of earnings.
Commercial Let Rental Income Is Higher Than Residential: Commercial properties often attract higher rental income than residential property, making them more favourable to investors. Income is still usually monthly as with residential which is also attractive. You are also entitled to review the rent annually so that you can increase rent in line with current market conditions.
As commercial property prices begin to recover, investors are steadily going returning to the commercial sector. So, with commercial mortgages available and business property offering many capital growth and income opportunities, is it time for you to consider commercial property as an investment?
About the Author:
Howard O'Gollegos writes for Just Commercial Mortgages the UK's No1 site for the latest commercial mortgage rates and commercial property finance news.
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