You may have made some money from the residential property market and now you want a change. Some investors will avoid commercial property altogether because it involves a lot more thought and managing than a residential property that you are going to do up and sell on. However, you may have decided that you need a change and want to at least gather some information on commercial property investment in the UK.
People who don’t bother getting some sound advice on property investment can often lose a lot of money on the commercial property market. Before you even look at commercial property you should get some advice on commercial property investment in the UK. Commercial property law is different to residential property law. When you invest in residential property you will usually be required to take out building insurance by your mortgage provider – it is the same with commercial property investment. In the commercial market however, the insurance requirements are different to those concerning the residential market.
Commercial property investment; in the UK or elsewhere is very different to other property investments and advisors should make investors aware of the risks as well as the opportunities for investment in this area. The overall value of commercial property for investment is much lower than the value of residential properties with a total equities value of £1,148 billion (figures for the end of 2002). Investors in commercial property investment in the UK come from many different walks of life and acquire commercial property as part of their investment portfolio for many different reasons.
There is a considerable amount of overseas money that is tied up in commercial property investment, UK figures for 2002 estimate that of the £6.6 billion overseas money, half of that was invested in offices. Commercial property investment for UK investors has been driven by pension issues and the equity market.
Commercial property is spread over three major areas; retail property such as shops, supermarkets and shopping centres, offices and business parks and industrial property industrial estates and warehouses. Parks, leisure centres and restaurants and pubs are much smaller sectors of the commercial market. The buy to let market is also part of the commercial property market and differs from residential buy to let in a number of areas. Tenants of commercial property often sign much longer leases than tenants of residential property. In the residential market the landlord is responsible for maintenance and repairs but in the commercial market the tenant has responsibility for this. In the residential sector property accrues capital value while commercial property value is in income.
Certainly there is a growing interest in commercial investment property, UK investors with reasonably good portfolios are now wanting to add commercial properties. The income is higher from commercial property investment, UK investors are realising that they get a better, immediate return and this income is greater than the equity growth in the residential market.
Just as in the residential market commercial property is offered on a freehold or leasehold basis with most leases being long term. If the lease is running out on commercial property then the tenant who rents from the investor may be entitled to renew his or her lease with the original owner. Sometimes there may be more restrictions on a leasehold property than on a freehold one – all that may contain restrictions concerning any effects on other people. The commercial property investment UK market, is driven by property investment companies who look for commercial properties that match the requirements of the investor.
In recent years there has been a rise in the number of commercial property lots going to auction. Some of these may be ideal for those testing their feet in commercial property investment in the UK.