Commercial property - an attractive investment?

Your pension and what to do with it is a hot topic these days, especially with the changes allowing lump sums to be withdrawn early.  

Many pensioners are investing their pension in property – primarily, residential property.  People tend to be more comfortable with residential property because many of us have owned houses and believe that it is the most straightforward option available.

However, if you are looking to invest in property there is an alternative…

Commercial property is a potential investment opportunity that is well worth consideration. This can be done by buying commercial property personally or by buying it through a self-invested personal pension (SIPP) that holds property. There are distinct benefits to each and these can be discussed with your financial advisor.

Whilst residential property and commercial property are similar in nature, there are significant differences. By comparison to residential property, commercial property can be an attractive opportunity for the following reasons:

Repairing Liability 

With residential lettings, a landlord retains the responsibly for the structure of the house.  If something were to go wrong then they would be responsible. 

Conversely, in commercial property the convention is that a tenant takes full responsibility for the structure itself, thereby leaving a landlord free from the worry of any problem with the property.   

Regulations

The letting of residential properties is highly regulated; the requirements of certification and compliance with legislation to protect tenants remain high.  

In commercial property, a building is let to the tenant in full and they are responsible for complying with all laws in relation to the use of the property.  

Rent Reviews 

Most commercial leases contain provisions for rent reviews. These entitle you to review the rent at fixed times, to consider whether the open market rent is being charged at that point. If parties cannot agree a new rent, then matters can be referred to a third party expert who will determine what the market rent is.  

Length 

Residential tenancies have a high turnover, it not being uncommon for a tenant to stay less than a year. The risk for rental voids is high and there are increased costs associated with having to find new tenants. There is also the additional uncertainty at the moment as to how easy it should be for a residential landlord to be able to recover possession of the property at the end of the tenancy, with the government proposing to tighten the grounds on which a landlord can evict a residential tenant. 

Commercial leases are generally longer than residential tenancies, with the current average lease being six to seven years. Unlike residential tenancies, commercial leases can be prepared in such a way that the tenant will have no rights to renew the lease and must vacate the property at the end of the lease if the landlord wants to recover possession 

Conclusion

Of course commercial property (and indeed any investment) is not without risk. As evidenced in the high street, there have been issues with tenants struggling and properties being left vacant. If you are considering investing in commercial property, it is therefore vitally important that the right kind of property, in the right area, is purchased.  

If you would like to discuss commercial property in more detail please do not hesitate to contact me, Dan Evans, on my direct line: 01603 724676 or by email at: dwevans@cozens-hardy.com.