New to commercial property investment? Four things to look out for

POSTED: 16th September 2015
IN: Guides

In order to improve their chances of maximising their return, here a few things landlords could consider before investing in commercial property.

The number of UK commercial property sales recently reached its highest level since the economic crisis in 2008.

In order to improve their chances of maximising their return, here a few things landlords could consider before investing in commercial property:

Long leases

With tenant turnover bringing extra admin, advertising and application costs to residential landlords, it’s unsurprising that experts predict the commercial property market, which can offer leases of up to 25 years, will continue to see growth. By securing a longer lease, landlords can reduce the risk of void periods while minimising marketing expenses and the amount of management required in between tenancies.

Additionally, a longer lease can increase the investment value of the property. Ian Harman, a Director of Prop-Search, says: “A longer lease will give the landlord more value and from a tenant’s point of view, this value can be shared by way of longer incentives such as rent frees or capital contributions, and/or more favourable lease terms.”

Popular areas

In order to minimise the risk of a property standing empty, investors should aim to purchase buildings in areas facing high demand from businesses. By investing in properties in popular areas, landlords could also see the value of their investments increase over time.

Quality tenants

It is within a commercial tenant’s best interests to maintain its workplace in order to provide employees with a welcoming environment and to impress customers. As a result, commercial landlords may learn they spend less time managing the upkeep of a property than their peers in the residential sector.

As property investor Arnaud Cheung explained in The Telegraph: “Commercial property is less hands-on. The occupier refurbishes and maintains the space, so the landlord has to do very little. Residential property is more labour-intensive, with tenancies changing every 12 to 18 months, wear-and-tear to address and issues that pop up beyond your control.”  

However, there is no guarantee a commercial tenant will maintain the property. To minimise the risk of problems arising, landlords should vet prospective tenants and if possible, look into their rental history. Investors could also benefit by seeking the support of an estate or letting agent who may be able to help find quality tenants. Finally, like most things, investors will usually find they get out what they’re prepared to put in and regular visits during the term of the tenancy can reduce the risks of attracting poor-quality tenants too.

Quality buildings

In order to make the most out of an investment, it would be wise to ensure the property meets prospective tenants’ requirements.

For example, tenants are likely to seek properties with a flexible layout, great facilities and sufficient natural lighting. Furthermore, with an increasing number of businesses looking for energy efficient properties in a bid to reduce bills, landlords could increase their profits by investing in properties that boast sustainable features.

With the government stating all rented properties must meet a prescribed minimum energy performance standard by 2018, energy efficiency in buildings will soon become a necessity rather than a benefit. As a result, prospective landlords could save themselves substantial renovation costs in the future by investing in properties that already comply with these expectations.

For investors looking to diversify their investment portfolio or find an alternative to residential buy to let investments, commercial property could be an option to investigate. To discover how you can maximise your returns with the help of an Aldermore commercial investment mortgage, please don’t hesitate to get in touch. 

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