Ironically during times of economic downturn a decision to invest in commercial property can in some cases be the right move. With abandoned offices and developments unfinished, real estate can often be one of the first areas to suffer. However from an investment point of view, if approached with caution, it can be a prosperous sector to tap into and more lucrative than residential property if invested in the right way.
A recent article published by the Financial Times in November 2015 highlights that investors spent more than £60bn into the commercial property markets in 2014, figures from Legal & General Property reveal, up from £52bn the previous year.
So why invest in commercial property?
1) Diversification of revenue
Property in itself can be a strong gateway to diversifying your revenue streams. In terms of financial returns, this can come from a number of areas including: income from the rent received from your commercial property; income growth as you increase your rent rates over time and the capital value of the building itself. It’s worth noting that in general, commercial property isn’t highly-correlated to other assets classes such as cash, fixed income equities. In a nutshell this means that the value of a property moves independently of other assets and so usually isn’t affected by what’s going on in the stock markets.
In times of economic uncertainty, negotiations on property can usually be much more flexible both in terms of investment costs and should be considered if investing in a commercial property. It ought to be flagged that as with any lease and rental contracts these will vary according to a number of factors including: sector (e.g. B1, D1), location and contract periods.
3) Active Management
Did you know that active management of properties can also strengthen your rental income and enhance the property’s capital value? In addition introducing adaptations and renovations to a property for environmental benefits can further add capital value and attract a high quality tenant. Worth considering if you are investing in commercial property.
What are the risks in investing in commercial property?
Property is renowned for being a cyclical investment and will have peaks and troughs both time and location-wise. In addition the state of the economy can also have a significant effect on borrowing and lending as interest rates and consumer confidence in the market fluctuates on a local, national and global scale.
Investments, property or otherwise, will always come with an associated risk and it would be advised to consult a legal and financial adviser before investments are made in any property.
Considering investing in commercial property? Complete our quick contact form or call us on 020 7118 3456 and a member of the MB&A team will get back to you as soon as they can.