Considerations When Investing in Commercial Property
Commercial property can encompass a pretty wide area.
The four main sectors include offices, retail (shops, shopping centres, retail warehouses), industrial (warehouses and factories) and leisure (restaurants, cafes, pubs, cinemas, gyms and hotels).
Essentially, commercial property is any premises intended to be used to generate a profit from the business that occupies it. So where do you begin if you’re planning to invest?
The right property in the right location
The starting point is to find the right property in the right location for the type of business.
Research your targeted area in terms of availability of property, tenant demand and rental values.
For example, if you want to rent out space as a shop, café or restaurant, it needs to be in a place that already has a high footfall. Alternatively, offices or warehousing will require space and be in a location that has good transport links so staff can easily travel to work.
You also need to plan ahead. Businesses grow. Does your commercial property offer facilities for expansion? If the number of employees increases or more machinery or equipment is required, can your property cope with the additional demand?
Does the property or site have planning permission for businesses?
If the property is already being used for a commercial enterprise, then it’s likely planning permission is in place, though you should still check.
If you’re looking at adapting a site, you’ll need to look into the permissions required for the class of business that will occupy the premises.
This is a list of some of the classes of business:
- A1 shops
- A2 financial and professional services
- A3 restaurants and cafés
- A4 drinking establishments
- A5 takeaways
- B1 business
- B2 industrial
- B8 storage or distribution
- C1 hotels
- C2 residential institutions
- C2A secure residential institution
- C3 homes
- C4 houses in multiple occupation
- D1 non-residential institutions
- D2 entertainment and leisure
A comprehensive list of use classes and planning and building regulations for England and Wales can be found on the Planning Portal.
Costs to take into consideration
There are a number of cost factors to consider when investing in commercial property. These can include:
- Stamp Duty Land Tax, payable if you buy commercial property valued at more than £150,000. (This is the current threshold in England and Northern Ireland. The SDLT on the portion up to £250,000 is 2% and a sale price above that incurs 5%. Stamp Duty has now been replaced with the Land and Buildings Transaction Tax in Scotland and Land Transaction Tax in Wales.)
- Solicitor’s fees.
- Commercial mortgage fees.
- Fitting out the property, appropriate to its business use.
Generally the following costs will be borne by the tenant and can include:
- Repairs and maintenance.
- Services that could include cleaning and security.
- Local authority charges, plus waste collection.
- Business rates – the local council presents you with a business rates bill each year. However, exemptions such as small business relief and rural rate relief are available.
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