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Our Guide to Investing in Commercial Property
Table of Contents
Are you interested in investing in commercial property? Whether you’re a seasoned investor or new to the commercial scene, we understand that the process can be overwhelming. If you’re unsure where to start, don’t worry. We can help you kickstart your commercial property investment journey and better understand the overall process.
To learn more about investing in commercial property in the UK, read our helpful guide.
Is Commercial Property a Good Investment?
Investing in commercial property is generally considered a good investment:
- High Return – Investing in commercial property is often considered attractive, as it offers higher rental yields and return on investment (ROI) in comparison to residential properties.
- Stable Income – Commercial leases can last up to 10 years, offering a consistent stream of rental income and the added security of peace of mind.
- Tax Advantages – Commercial property tax perks include full mortgage interest deductions, lower Stamp Duty and Capital Gains Tax (CGT), and self-invested personal pension (SIPP) tax-free growth.
- Capital Appreciation – Commercial properties in sought-after areas with modern or improved features will likely appreciate over time and sell for a higher price if you ever decide to sell in the future.
- Diversification – Investing in commercial property diversifies your portfolio, which can also help spread risk across other types of investments you have, especially if they fail or don’t do as well.
How to Invest in Commercial Property
If you’re interested in investing in commercial property, you’re likely wondering about the best approach. While property investments may seem daunting, making a plan and following a simple process can make it much easier to get started.
Choose a Short or Long-Term Investment
Choosing a short or long-term investment depends on financial goals and how much you’re willing to risk. Weighing up the differences between the two is essential to make the right decision:
- Short-Term – Short-term commercial property investment typically means buying, improving, and then selling quite quickly. This often delivers faster profits, making it an attractive route when it comes to property investments. However, the process is generally considered higher risk due to increased transaction costs, including Stamp Duty and legal fees, and funds required for renovation work.
- Long-Term – Long-term commercial property investment focuses on keeping the asset for a long period to earn rental income and capital appreciation. This route is best for investors seeking a steady cash flow rather than quick gains. Compared to short-term commercial property investment, it’s likely to be less stressful, as income is supported by long leases (up to 10 years in some cases).
Research Location & Property Types
Researching location and property types is an essential step to understanding returns and risk factors when investing in commercial property. Different areas in the UK attract different tenants, and each commercial property type has its own income.
Common commercial properties include offices, retail spaces, industrial warehouses, and mixed-use buildings for both commercial and residential purposes. We generally advise looking at areas with strong local economies and high demand for tenants, with business activity and easy transport links.
Get a Commercial Mortgage or Buy Outright
Deciding whether to use a commercial mortgage or to buy outright depends on your budget. Commercial mortgages allow you to borrow the money to purchase a property for commercial use, with deposits ranging from anywhere between 20 and 40% of the property’s value. While a commercial mortgage means you have more capital for other investments, you’ll need to consider the monthly repayments and interest costs.
Alternatively, you could buy your commercial property outright with your own funds. This removes the costly, monthly repayments, interest fees, and mortgage risk. However, you’ll be required to spend a large portion of your capital in one go, which could potentially limit your ability in other investment areas.
Secure a Commercial Property
Securing your commercial property is the next step after planning and research. At this stage, you work with an estate agent who specialises in commercial property to find a suitable building for your budget, type, and location. You must work closely with a conveyancing solicitor to review the property’s legal title, planning permissions, and any restrictions before completing further legal work, such as exchanging contracts and registering in your name at the Land Registry, to finalise the purchase.
Manage Tenants & Income
Once your commercial property is secured, you will need to manage your tenants and rental income. This involves finding reliable occupiers, agreeing on lease terms, and completing other general tasks, like collecting rent when it’s due. However, we understand that this can be time-consuming, especially if you have other investments to manage. We highly advise finding a reliable property management agent to handle everything on your behalf. At Peninsular Property, we offer expert property management, from finding tenants to collecting rent and dealing with maintenance.
Ways to Earn Money from Commercial Property Investment
There are two main ways to earn money from commercial property investment – rental income and capital appreciation.
1 - Rental Income
Rental income is the common way for commercial property investors to earn money by leasing the building and collecting rent. Lease periods can vary but typically last between 5 and 10 years or more in the UK, bringing in a steady and reliable stream of income.
2 - Capital Appreciation
Capital appreciation allows your commercial property to increase in value over time. This means that when you eventually come to sell it, you’ll make a profit on what you originally spent. However, capital appreciation varies depending on the location of your commercial property, demand, and, of course, market conditions at the time.
Start Your Commercial Property Journey With Us
At Peninsular Property, we help you invest in commercial properties in the North West. We’ve helped many investors across the area regarding investments in offices, industrial buildings, and retail units. Our expert team has over 30 years of experience, offering support throughout the entire process. We manage everything so you can focus on other aspects of your work life with our property sourcing, market research, and trusted property management services.
To find out more about how we can help with your commercial property investments, please don’t hesitate to contact us today!
FAQs:
How do I purchase a commercial property?
To purchase a commercial property in the UK, you must:
- Set a budget
- Decide on the investment type (short-term or long‑term)
- Research locations in the UK
- Consider commercial property types
- Arrange finances (commercial mortgage or buy outright)
- Work with a commercial estate agent to secure a property
- Instruct a conveyancing solicitor to manage the legalities, like checking the legal title, leases, and planning permissions
What is considered a good return on property investment?
A good return on commercial property investment in the UK is often considered to be in the 5–10% range after costs.
Are commercial properties subject to Stamp Duty?
Yes, commercial properties are subject to Stamp Duty Land Tax (SDLT) in the UK, just the same as residential properties, but at different rates:
- £0 – £150,000: 0%
- £150,001 – £250,000: 2%
- Above £250,000: 5%
Is it good to invest in commercial property?
Yes, investing in commercial property can be good depending on your overall goals and risk tolerance. Commercial property offers many benefits, from high rental yields to longer leases, but may come with increased upfront costs and potential risks.
