Commercial Property
Commercial property bought to let is similar to residential property. You invest to make gains over the long term on the value of the property, and in the short term on the income received from tenants.
Commercial property can include high street stores, business units, offices, shopping centres etc. The property can be owned as freehold or leasehold. Freehold means you own the property outright. Leasehold means you own the right to rent the property from the freehold owner – you are the tenant.
Although the market in the UK is dynamic and flexible compared to most countries commercial property is still seen as a more long term investment than even residential property.
The value of the freehold property tends to be higher depending on the length of the lease that is running on the property. Typically this would be from 15 to 100 years or more. However shorter leases are becoming more popular.
The contracts are understandably more stringent as well. Rent reviews are usually built in to the contract between the freehold owner and the leaseholder looking to rent. These are typically every 3-5 years and sometimes include upward only reviews, which would be based on market rates at the time of the review.
However because businesses move less frequently than individuals in the rental market commercial property can be a stable source of income. Although the flip side to this is that if the premises become vacant it can take a lot longer to find another tenant.
Needless to say owning commercial property is very much a specialist area. Lenders may well look at your experience as a landlord as well as require a large deposit before you could take out a commercial mortgage.
In recognition of this, and the fact that many investors do wish to own commercial property in some way, Real Estate Investment Trusts (REITs) have become very popular.
