The media have all but destroyed the pensions market - Global security concerns have destabilised the stock market - And let’s face it; residential property prices globally are astronomical…
...so what alternatives do you really have?
Investing in a building society account?
With those interest rates?
Hardly!
Well, how about owning a piece of the Building Society’s building instead then?!
Investing in commercial property used to be a game played only by traditional institutions such as the Church and Crown, or by the large investing institutions - those guys who invest for life funds, pension funds, and investment trusts etc.
But nowadays more and more financial institutions have recognised the commercial property opportunity and have established property investment funds for the individual investor like you.
And more financial advisers and ‘money-astute’ people are recognising the benefits of getting directly involved in the commercial property market place.
So what’s it all about?
Well, the commercial property market can be subdivided into: -
1) Retail - e.g., shopping centres, supermarkets
2) Industrial - e.g., warehouses, factories
3) Office - e.g., office blocks and business parks
4) Leisure - e.g., hotels, leisure parks
And each type offers different opportunities.
It’s really important to understand that investing in commercial property is very different to investing in residential property.
Tell me more…
- You generally benefit from higher guaranteed income on commercial property compared to any income potential from residential rent. You generate this income through institutional leasing - this gives you a guaranteed, clear return for a fixed term
- In addition you have ‘upward only’ rent reviews every 3 to 5 years - cool!
- The lease offered is most often FRI - full repairing and insuring - and is generally far longer than a residential rental contract.
- Commercial property enjoys a fair but steady growth in value - though certainly not the massive (unsustainable?) hikes seen in the residential property market.
- Having said that, the already well established property market structure in the UK does work for commercial property as well - there is a fair amount of liquidity in the market.
- There are long established disciplines when it comes to the valuation and finance of commercial property, meaning that cost and value are more transparent thus potentially reducing levels of risk and uncertainty.
- Often any refurbishments are less frequent and less costly than for a residential rented property.
- Commercial properties require minimal hands on management from you and you also have less need for a managing agent to work on your behalf.
How to invest.
The following list in not exhaustive but offers some ideas for your further consideration…
1) You can actually invest tax free in commercial property! A SIPP or self invested personal pension scheme can be used to invest in commercial property and remove your income tax, VAT, capital gains and IHT liabilities! Though you’d want to speak to a tax and financial specialist to make sure you were going about things the right way.
2) If you join an investment syndicate your money can go further - there is no limit to the number of commercial properties an individual or syndicate can buy! By joining a syndicate you spread your risk potentially, and your personal investment can go further when combined with that of all the other syndicate members.
3) As I mentioned earlier, some financial institutions have certain commercial property investment funds available into which you can invest…this might be another angle to discuss with your financial adviser? Or you can find out about the newest breed of funds offering “multi dynamic diversity” (don’t worry all will be explained!) here: -
Unique Commercial Property Investment Opportunity
4) Offshore property investment companies - certain jurisdictions offer the chance for investment companies to create tax efficient investment funds that can then be sold to UK investors, e.g., Guernsey of the Isle of Man.
Any disadvantages or risks?
Any investment carries a degree of risk, having said that though property is widely accepted as the best performing asset class de jour.
To help you understand your attitude to risk and to determine which investment classes would work best for you, speak to a qualified financial adviser.
If you need help in finding one, especially one who specialises in offshore investment or property investment in your location, or you would like more information about commercial property investment or any other subject Shelter Offshore write about, feel free to ask us!
- General interest lending rates do tend to be higher on commercial properties
- Such property is generally far higher priced than a residential buy-to-let opportunity for example - this means spreading risk is harder and your capital investment won’t go as far - but if you buy into a fund or join a syndicate you can potentially overcome both negatives.
- The capital value of the property rises slowly compared to residential property and the nature of the building or business can make it difficult to sell quickly.
- The value of the property can of course drop. If the property’s desirability drops and you cannot let it, if occupancy rates decline or the repair or general location go down so can the value of your investment.
Bottom line considerations.
Commercial property is a serious asset class and a solid investment type - to understand whether it would work for you, you need to analyse certain considerations: -
- How much of your investment wealth to invest
- The type of property to invest in
- The legal and taxation implications of your investment decision
- Who to invest with - a syndicate, a financial institution, alone?
- How to invest - a portfolio, a fund, onshore, offshore?
- Tenants - types of, management of, demand from
- Condition of property - a straight investment buy in or a refurbishment/conversion opportunity
- Know the true worth and value of the property - have it fully surveyed, don’t over pay
- Make sure lease agreements are comprehensive
- And last but not least - outlay versus return, cost versus value
Good luck with finding the right opportunity.
