How to invest in commercial property in the UK and is now a good time to act?


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How to invest in commercial property in the UK

The commercial property market has faced pressure in recent years. Demand for commercial space waned in the face of the pandemic. Prices, in turn, were sent downwards. These issues were also exacerbated by rising interest rates, recession fears, and the September mini-budget fallout.

In the final quarter of 2022, UK commercial property dealmaking fell to the lowest level seen in over a decade. Only £7bn worth of deals were transacted, and commercial real estate prices fell by over 15% between June and the winter months.

What’s more, a recent survey of commercial estate agents revealed these declines in sales are expected to continue in Q1 2023. Property investors do not appear to be concerned with how to invest in commercial property in the UK.

Source: Financial Times, Property Industry Eye

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In the middle of difficulty lies opportunity

But, this lack of demand may be creating lucrative opportunities for buyers. The tide may be turning against the work-from-home culture that emerged from the pandemic. As many as 83% of businesses want to see their employees back in the office for at least 3 days a week.

These preferences are coming from some major employers too. Many of which had previously championed the flexible working cause. The likes of Amazon, Disney, Tesla, Goldman Sachs, and Twitter are all demanding a return to in-person work.

In certain segments of the commercial market, these sentiments appear to be having an impact. Commercial property investment in the City of London hit an 8 year high in January, according to Savills. Meanwhile, some City of London law firms are trying to lure staff back with tempting incentives. This includes yoga studies, nail bars, and in-office beehives.

A commercial property rebound may be on the horizon. Demand could rise over the medium-to-long term, pushing up prices once again for investors.

With prices subdued at the moment, now may be an opportune time to get involved in the market. Fortunately, there are many options available to property investors to do so.

Source: Business Leader, The Mirror, The Telegraph, Yahoo Finance, Financial Times

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Semi-commercial opportunities not to underestimate

If you’re wondering how to invest in commercial property in the UK for the first time, investing in a mixed use or semi-commercial asset may offer an inroad. These kinds of properties may allow you to benefit from the business elements, while limiting complete exposure to commercial logistics.

Semi-commercial property investment can involve investing in a pub with a flat above it, or student lets with retail units below, for example. If you want to purely focus on the business side of things, you can instead focus solely on commercial properties.

There is a broad range of options available to you here. Everything from small offices, through to large industrial complexes fall into this bracket.

To see what options are out there, you could turn to estate agents who specialise in commercial property. Currently, there are over 800 commercial properties on sale in London alone listed on Rightmove.

Source: Rightmove

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Turn to auction properties

Opportunities can also be found at auctions. Allsop, one of the UK’s largest property auction houses, currently has a number of commercial auctions scheduled in between March and the summer months. Auctions could be beneficial if you’re looking for an opportunity to move quickly, or you have a limited budget to work with.

Your investment end-goals should also direct how you invest in the commercial property market. Perhaps you want to invest in a commercial property to benefit from the underlying business’ potential. If that’s the case, you may want to examine the company’s books. Ask yourself, is the industry its in sustainable? Has the firm brought in consistent profits?

Or, maybe you want to invest in an empty store, and convert it into a residential home. If so, you’ll want to examine the demographics of the area. Is the property in a university town with plenty of students looking for a place to stay? Are there local amenities nearby? Before investing in any commercial venture, you should do your research, and speak to a professional advisor.

Source: Allsop

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What are the advantages of investing in commercial property?

Commercial property presents many opportunities for investors. Chiefly, this includes optionality. There are many answers to the question of how to invest in commercial property in the UK.

There are countless sectors, markets, and audiences out there in the economy. All of which you could easily target through property. There are promising opportunities in the UK, even as we face down a challenging economic environment.

Supermarkets, construction contractors, hospitals, and car dealers may see skyrocketing revenues in 2023. These industries may need more commercial space to grow over the coming months.

Investing in commercial property may also allow you to diversify. If you’re solely invested in residential property, the commercial world could allow you to expand your portfolio into new areas.

Diversification generally allows you to spread your risks. If you end up in a position where you’re struggling to find tenants for your residential assets, it might prove useful to have commercial properties still generating income.

Source: IBISWorld

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Is commercial property a good investment at the moment?

While commercial properties may present many advantages for investors, the question remains whether now is a good time to invest. There will never be a concrete answer to the question of whether an investment is purely good or bad. There are simply too many moving parts to consider.

But past performance is not indicative of future results. The difficulties facing the commercial property market may soon be behind us. Better days could be on the horizon for those exploring how to invest in commercial property in the UK.

Carter Jonas’ latest commercial market outlook noted: “The period of downward yield shift in these sectors is now firmly over.

“Commercial property is now seeing yields move upwards across the board, as investors have reassessed their risk assumptions following the rapid rise in long and short-term interest rates, together with the weaker outlook for economic growth.”

It also found there was a “dearth” of quality supply in the commercial market. Meaning, there could be a need for property investors to step in and offer much needed support.

Also, while UK commercial property values dropped in 2022, in 2021 they rose by 13.8% according to CBRE, with returns jumping 19.9%.

Ultimately, commercial property can present just as many opportunities as the residential market can – if not more. You will just have to do your homework to determine what industries, geographies, and workforces are worth investing in, and right for you.

But, when you’ve made your choice on how to invest in commercial property in the UK, we’ll be there to support your plans with flexible, speedy specialist finance options.

Source: Carter Jonas, Reuters

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