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The complete guide to buying a commercial property in the UK

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Investing in commercial properties in the UK can be an incredibly lucrative venture for those seeking to diversify their investment portfolio.The UK boasts a booming commercial real estate market with opportunities for investment in sectors that include office spaces, industrial warehouses, retail properties and more. With a strong demand for commercial space, purchasing commercial property in the UK offers potential long-term returns through rental income as well as capital appreciation. 

 

However, it is important to conduct thorough market research and due-diligence before making any investment decision when it comes to commercial property. A variety of factors need to be considered including market conditions, potential risks and tenant demand. Financial considerations including tax implications, maintenance costs and funding options also need to be carefully considered. This is why it is vital to seek the services of a reputable real estate investment expert. These professionals provide valuable guidance throughout the entire investment process. 

 

In this article, we unpack all you need to know about burying a commercial property in the UK. But before we begin, let’s take a look at what makes up commercial real estate.

What is Commercial Real Estate in the UK?

Commercial properties in the UK refers to real estate assets that are used for business purposes as opposed to residential purposes. There are many types of properties that fall into this category and these include:

 

  1. Office buildings: Properties that are designed for administrative and professional work and include corporate offices, business centres and co-working spaces.
  2. Retail spaces: Real estate properties that are used for retail trading such as shopping centres, shops, high street stores and malls. 
  3. Industrial properties: Real estate used for production, manufacturing, distribution and warehousing purposes. These properties include factories, industrial parks and logistic centres. 
  4. Hospitality and leisure: Properties in this sector include hotels, cafes, pubs and leisure facilities such as gyms, entertainment centres and cinemas. 
  5. Healthcare facilities: The commercial properties in this sector include medical centres, hospitals, clinics, nursing homes and other health-care related office spaces.
  6. Mixed-use developments: Real estate properties that combine a variety of commercial uses along with residential components such as complexes with retail spaces. 
  7. Rural and agricultural: This includes agricultural lands and farm buildings that are used for livestock rearing and related business activities.

 

The above are general categories and there can be further subcategories as well as specialised commercial property types within each sector in the UK.

Can anyone purchase a commercial property in the UK?

There are several advantages to purchasing a commercial property in the UK. Below, we take a closer look at the benefits of adding a commercial property to your investment portfolio:

 

  1. Rental income: Commercial properties potentially generate higher rental incomes compared to residential properties. This is because businesses typically sign long-term leases, offering stable and predictable cash flow for property owners.
  2. Capital appreciation: Over a period of time, commercial properties in prime locations have the potential for what is known as “Capital appreciation.” The demand for these properties increases as surrounding areas develop and this means the value of the property can rise, leading to greater capital gains upon sale.
  3. Diversification: By investing in a commercial property, you are able to diversify your investment portfolio substantially and take it beyond traditional assets such as bonds and stocks. This serves as a hedge against market volatility and offers a stable income stream.
  4. Longer lease terms: Commercial property leases are usually longer than residential leases, offering stability and reducing tenant turnover, minimising vacancy periods and the costs associated with this. 
  5. Tenant responsibility: In many instances, commercial tenants are responsible for the maintenance, repairs and operating expenses of the property which alleviates the burden of ongoing management and maintenance costs. 
  6. Professional relationships: By owning a commercial property, you are able to build professional relationships with tenants which opens up new opportunities for networking and collaboration in the future.
  7. Greater financing options: The financing options that come with commercial properties in the UK are often more favourable when compared to residential properties. This is because of lower interest rates and longer terms, allowing investors to leverage capital and enhance ROI. 
  8. Tax benefits: Commercial property ownership offers a variety of tax advantages such as deductions for mortgage interest and maintenance expenses – and more. This is why it is important to work alongside a commercial property tax expert. 

 

With all the above advantages in mind, it is important to note that commercial properties may also carry risks and require careful consideration regarding market conditions, tenant demand, financial factors and location. Let’s take a look at why it is important to practise due-diligence and seek professional advice when making this kind of decision. 

The disadvantages of purchasing a commercial property in the UK

While investing in commercial property in the UK has numerous advantages, there are also potential disadvantages that investors need to consider. However, many of these challenges can be mitigated or resolved through due-diligence and by working with real estate experts. Below, we take a look at some of the disadvantages and how they can be addressed successfully.

 

  1. Market risk: Commercial property values can fluctuate due to changes in market conditions, economic factors, and industry trends. Conducting thorough market research and analysis, as well as seeking advice from real estate experts, can help identify areas with growth potential and minimise the risk.
  2. Tenant Vacancies: If a commercial property experiences tenant vacancies, it can result in loss of rental income. Engaging real estate experts to assess the demand and marketability of the property, choosing desirable locations, and conducting thorough tenant screening can help reduce the risk of prolonged vacancies.
  3. Property Management: Managing commercial properties can be complex, involving responsibilities such as tenant relations, lease agreements, property maintenance, and compliance with regulations. Hiring experienced property managers or real estate management companies can alleviate the burden and ensure efficient property operations.
  4. Financing Challenges: Securing financing for commercial properties may have stricter requirements and higher down payment compared to residential properties. However, working with financial professionals who specialise in commercial real estate can help navigate financing options, secure favourable loan terms, and explore alternative funding sources.
  5. Legal and Regulatory Compliance: Commercial property ownership involves adherence to various legal and regulatory requirements. Engaging real estate lawyers or solicitors can help ensure compliance with laws, review contracts and lease agreements, and protect your interests.
  6. Property Condition and Repairs: Commercial properties may require ongoing maintenance, repairs, and occasional renovations. Conducting thorough property inspections and assessments, along with working with qualified contractors and building inspectors, can help identify potential issues and estimate associated costs.
  7. Economic Factors and Industry Trends: External factors, such as economic downturns or changes in industry demand, can impact the performance of commercial properties. Staying informed about market trends, diversifying investments across different sectors, and seeking guidance from real estate experts can help mitigate the effects of such factors.

 

By conducting due diligence, seeking expert advice, and being proactive in property management and market analysis, many of the potential disadvantages of purchasing a commercial property in the UK can be effectively addressed and minimised resulting in long term success. 

Can you buy a commercial property in the UK to live in?

In the UK, commercial properties are intended for business purposes rather than for residential usage. Therefore, it is not common or permissible to purchase one of these properties with the sole intention of using it as a residential dwelling space. However, there are a few scenarios in which a commercial property can be converted for residential use. 

 

The process of converting a commercial property for residential use is referred to as “Change of Use” and usually involves obtaining planning permission from the local authorities. The feasibility of converting depends on a variety of factors such as the property’s location, building codes, zoning regulations and other requirements of the local planning authority. 

 

This is a complex process and there are additional costs and considerations that come with this, such as obtaining building permits, ensuring compliance and meeting building regulations. Engaging the services of professionals including property surveyors, planning consultants and architects is vital to navigate this process effectively. 

 

If you are specifically looking to purchase a property to live in or rent out to live in tenants, it is generally more straightforward and common to explore residential properties, such as houses, apartments, or flats, which are specifically designed and designated for residential purposes in the UK.

 

What is the process of purchasing a commercial property in the UK?

The process of purchasing a commercial property in the UK is made up of a variety of steps, Below, we unpack a general overview of the process:

 

  1. Define your investment strategy: You need to determine your investment objectives, budget, preferred location, and property type. A variety of factors goes into the strategy and you need to fully consider factors such as rental yield, potential for capital appreciation, market trends, and tenant demand.
  2. Financing: Once you have an understanding of your investment strategy it is important to explore and investigate financing options, such as commercial mortgages, and consult with lenders to determine the amount you can borrow. It’s advisable to obtain a mortgage agreement in principle before proceeding further.
  3. Work with real estate professionals: Seek the assistance of commercial real estate agents or brokers who specialise in the type of property you are interested in. Professionals will work with you to help you identify suitable properties, arrange viewings, and negotiate on your behalf.
  4. Property search and due-diligence: Work with a real estate professional to conduct thorough research on the properties of interest. A property specialist will help you assess factors including location, access to amenities, transportation links, potential risks, market conditions, and any legal or planning issues. Work with surveyors and property inspectors to assess the physical condition of the property.
  5. Make an offer and negotiate: Once you have identified a property of interest and one that is suitable, make an offer to the seller or their commercial property representative. Work with a professional who will be able to successfully negotiate the price, terms, and any additional conditions, such as fixtures and fittings. Engage with a solicitor or conveyancer to handle the legal aspects of the transaction.
  6. Conduct legal due diligence: A professional solicitor will conduct searches and investigations to ensure there are no legal or regulatory issues with the property. This may include searches for planning permissions, title deeds, environmental issues, and other relevant matters.
  7. Exchange of contracts: Once terms are agreed upon by all parties involved, you and the seller will sign a legally binding contract. At this stage, you will typically pay a deposit, usually 10% of the purchase price.
  8. Transfer of ownership: On the agreed upon date of completion, remaining funds will be transferred, and the ownership of the property will be transferred to you. Your solicitor should handle the necessary paperwork, including registering the property with the Land Registry.
  9. Post-completion matters: Arrange for insurance coverage for the property and manage any ongoing obligations, such as tenant leases, property management, and maintenance.

 

As stated previously, the above processes are a general overview, and your specific process will vary depending on your particular circumstances, property type, and local regulations. Working with experienced professionals, including solicitors, surveyors, and commercial property experts, is crucial to ensure a smooth and successful purchase.

 

How Gerald Eve can help you

Are you interested in purchasing commercial property in the UK?

 

With our extensive experience and reputation as a leading property consultancy, Gerald Eve offers invaluable insights and guidance to investors. Our team of knowledgeable professionals understand the intricacies of the UK commercial property market and can help identify lucrative investment opportunities.

 

From market research and property valuation to negotiating deals and navigating complex legal and regulatory requirements, Gerald Eve provides comprehensive support at every stage of the transaction.

 

Our personalised approach ensures that our client objectives and needs are prioritised, resulting in tailored solutions and successful outcomes. With a commitment to delivering exceptional client service, Gerald Eve’s expertise and industry connections make us a trusted partner for those seeking to make informed and strategic commercial property investments in the UK.

 

For more information about our services and to explore our track record of success, contact our team today.