The commercial property market in the UK is starting to return to a state of healthy performance, after a few years of negativity, according to new reports. So is now the time to invest in the market?
Putting money into real estate has become more popular in recent years, thanks to the fact it offers tangible assets, and often far better returns on investment (ROI).
For example, Every Investor reports that rental yields in the commercial market in the UK are now at a level of six per cent, almost 50 per cent more than the money that can be earned from investing in corporate bonds.
And with demand still rising - the Royal Institute of Chartered Surveyors (Rics) reported a 15 per cent hike in demand in quarter two - yields are only likely to improve in the months and years ahead. This makes commercial property an ideal investment, but getting into this market requires a knowledge of the sector and the best ways to get your hands on the properties that will make you money as a commercial landlord.
Know the market
If you are not au fait with the commercial property market, it's best to get very much acquainted with it before you dive in and start buying.
One of the most common mistakes made will be for those with residential experience to treat business property as the same sort of monster - remember that it is completely different.
Trends change, and while London is still hot in the residential market, the ability to work remotely and in less expensive areas is seeing regional growth throughout the commercial sector.
For example, Rics reported a net balance of 28 per cent more agents experiencing a rise in demand in Lancashire for office space in quarter three (up from 11 per cent three months before).
Meanwhile, in the Scottish commercial property market, spend has gone from £26 million in the whole of 2012 to £55 million in the first half of 2013 alone.
These are the markets that are hot at the moment, and knowing where to invest is half the battle. A little digging into the state of any sector before you buy is a vital starting point.
Get the right people
There are all sorts of regulations associated with the letting of office spaces and retail units, so if it's something you've never done before, you will want to make sure you have the right people on board.
An accountant will be able to assist you with the ins and outs of financing a deal, while an estate agent will be able to guide you through the process, and a lawyer will make sure everything is above board.
These may seem like expensive outlays, but spending wisely to have the right people on board will pay dividends down the line, helping you avoid potential pitfalls and sidestep common problems that crop up.
Choosing the right property
This is all a part of knowing the market. You need to know what people want to rent if you are going to maximise income.
In the modern day, it's all about embracing the future, and this is as much about the office as it is about the business itself.
Some 92 per cent of companies in the UK, according to findings from Alsbridge, make use of the cloud for their storage options, while 1.6 million people across the nation now work at home rather than in the office.
What this has driven is a demand for Grade A stock - commercial spaces that have fast broadband connections, are up-to-date and technologically friendly. Home worker numbers also mean these are often more compact and streamlined than in the past.
Such is the demand for this type of property that cities where there is a shortfall, like Birmingham, face the threat of being left behind.
Buying the wrong sort of property can see you left behind and leave you with a high vacancy rate, so make sure you know what to look out for.
Financing
Perhaps the biggest barrier to any property deal, and the last hurdle to cross, will be financing your deal. Once you have chosen your property, you will need to get yourself a mortgage.
Again, this can be a common pitfall for those who have experience in the residential investment market. There are a number of differences when it comes to commercial finance that it's vital to know about.
For example, whereas the typical deposit on a house will be about ten to 15 per cent, down payments on offices will typically start at around 30 per cent, meaning you need to come to the table with much more money upfront.
On the other hand, when it comes to periods of low interest rates, such as we are experiencing in the UK at the moment, commercial buyers are onto a winner. With certain banks, it is possible to fix rates for as many as ten years - double the typical periods in the residential market.
Again, knowing the ins and outs before you go into this stage will help smooth over the process. However, once you have invested and funds have cleared, you will be able to start marketing your property and taking advantage of the ever-increasing positivity in the commercial property sector.
Ready to take the plunge? You can check out our commercial property listings here.
