Luring residential property investors to commercial property investment
An article in the Telegraph under the heading:- ‘has the tide turned for commercial property?’ which tried to make a case for residential investors to consider commercial property investment, caught my eye in the last few days.
The article made out some of the ‘pro’s’ and the ‘cons’ for commercial property investment although it printed a quote on property investment yields from a Partner of one of the UK’s leading Building Surveying Practices which led me to read the piece with a little scepticism. What struck me though was the importance of distinguishing between the two asset classes in investment terms of residential and commercial properties as they cannot be more different.
I will not detail the benefits or otherwise of investing in residential as this is not an area where I have significant expertise. The area of specialism for me and my investment colleagues is in commercial real estate.
The first thing about commercial property investment is that supply is quite limited and ‘choice’ such as it is can be very narrow. It is very difficult to identify the ideal property or portfolio you may have been thinking of buying. A shortage of viable property stock means competition for good opportunities is high with smaller investors sometimes competing with Property Companies, funds and other institutional investors.
If you are limited to smaller, lower value investments these will likely come with higher risk by way of shorter leases; less secure tenants, poorer prospects for re-letting etc.
The key to investment is less to do with having a ‘good lawyer’ which the Telegraph was recommending, than to have decent, rounded advice from an experienced property professional.
Commercial property investments can be very efficient requiring little management and decent returns from rental and potential capital growth. The obligations on a landlord are dictated by way of the lease terms are in place and involvement can be minimal if the correct repairing obligations are in place and dilaps is properly followed up.
I would also add that a commercial property let to a business will usually require for less ongoing management time, as well as cost, as tenancies will be longer than 6 months (as is the case with residential) and therefore the income far more secure.
If you are considering investing in commercial property I will borrow some words from the Telegraph article in that ‘the advice is to be fully informed and well researched’ and I would add ‘talk to Harris Lamb’.