Trends in purchasing commercial property
If you are interested in buying a commercial property in the UK, be firm about the reasons why you are making the purchase, that you understand the trends in the market and exactly what to look out for to ensure you achieve your goals.
Below is advice for both the first time buyer venturing into purchasing commercial property and the more seasoned buyer looking to add to their portfolio.
Buying commercial property in the UK
The number of buy-to-let buyers purchasing commercial properties has tripled in the last three years, as buyers find the yield of commercial properties is generally higher.
The value of the UK’s commercial property stock reached up to £871 billion during 2015. Also, did you know that the commercial property industry contributed around £68 billion to the UK economy in 2015 – 4.1% of the total UK economy? This means that the commercial property industry has delivered an economic benefit.
While investing in commercial property has been rising steadily, it appears that the make up of buyers is continuously changing as more overseas buyers continue to purchase commercial properties within the UK. This however, could all be about to change as the ‘divorce’ deal with Brexit unfolds. Understanding the potential areas of boom and bust are set to be critical over the next few years; city investors may be able to weather the storm more readily than commercial buildings in more rural areas where there may be a reduction in industry or a less stable working population.
Are you a first time commercial property buyer?
As a first time commercial property buyer, gaining the relevant understanding before you start is the first step in the process of making a purchase.
Fast Fact: Are you aware that the commercial property market is made up primarily of shops, offices and industrial buildings such as warehouses. Have you decided the scale and use you wish to invest in? Or for you, is it more about location and price?
Is financial backing your first hurdle? Did you know that you can simply purchase directly by investing in a fund which carries the actual physical property in its portfolio rather than simply purchasing a property yourself:
Tip: When is it the best time to begin the process of purchasing your first commercial property? Some properties may be too expensive to purchase during a specific time, for example major local construction which has resulted in an influx of supporting industries, increasing demand for the limited premises available. Conversely, you may discover areas where properties prices have temporarily dipped, meaning reduced purchase prices. Areas to watch are those with planning approved for significant investment in infrastructure or regeneration.
Investment potential can be found by researching the latest trends in both the local and the national commercial property market. This includes:
- Value of commercial property.
- Supply of commercial property.
- Availability of commercial mortgages.
- Appetite of competing property investors.
Are you currently a commercial property owner looking to expand your property portfolio?
Are you currently a commercial property owner, experienced in finding what you are looking for, the best time to purchase, as well as the value of the commercial properties? When adding to your portfolio, there are different points to consider before purchasing another commercial property.
Tax relief through Capital Tax Allowance
Are you aware of the potential tax relief for commercial property owners? A survey from Catax reports that two in five SMEs which own business premises are not aware that they can claim tax relief. This potential windfall is valuable to property owners who may be entitled to not only a rebate but also tax relief which is ongoing. When considering purchasing commercial premises, speak with your accountant about Capital Allowances.
Commercial property owner with SIPP
Did you know that if you own a commercial property in your personal name with your business paying the rent you could transfer it into a SIPP whereby your business pays into your pension pot and you can potentially save significant tax
Looking beyond the standard property investment portfolio
The usual types of property to invest in are mentioned earlier. If the market is over inflated (or with limited opportunities for what you are looking for) looking elsewhere into alternatives may prove more lucrative. Leisure and entertainment venues can also be bought with a SIPP and rented out to businesses.
Maximising your return: minimising your risk
Investing in your first commercial property can be daunting and carries risk. Expert commercial property advice is recommended to avoid common pitfalls. You need to make sure you can financially cover periods of potential rental drought.
Building your property portfolio obviously also carries risks, but liabilities can be lessened by managing a number of investment properties. To minimise your losses when investing in a commercial property, know the market and short and long term trends for the area in which you are investing. Beware of properties which have mixed use such as a pub which provides accommodation.
Investing in commercial property has pros and cons but can reap short and long term rewards including tax relief for businesses which own premises. Providing you enter or invest in the market wisely, investing in commercial property can reap rewards.
If you would like specific advice about investing or managing commercial property, please contact Caroline Jones, our Head of Commercial Property.