A Guide to Investing In
Commercial Property

Are you ready to enter the world of commercial property?

Whether you've made your fortune in the buy-to-let game or you're looking for a longer-term income stream and greater security, you'll want to consider investing in commercial property.

Why? I hear you ask.

Think about it, Commercial property plays an important part of our everyday lives.

The office space you work in, the store you shop at, and the cinema and restaurants you visit are all examples of commercial property. It's this sector that is a vitally important part of our country's economy and we all contribute to this economy in a number of ways.

For example, have you noticed that people are living longer these days?

In the 1980s, the average life expectancy was 80 years. Now it’s 90 years. My guess is that in ten years, the government will raise the age of retirement from 65 to 70, meaning that people will be forced, by law, to work while they are older. This will create higher demand for commercial real estate.

I'm sure you've also noticed the thousands of people migrating to this country looking for work every year. This places huge demand not only on residential property, but also on commercial property.

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We are also witnessing falling investment yields in the buy-to-let residential market. This has attracted a growing number of private investors to investing in commercial property. They've been lured by generous tax breaks and the higher rents that they can charge to commercial tenants.

However, the greatest demand for investing in commercial property is from the overseas investors. Among them, the oil-rich countries of the Middle East and Russia are especially prominent. Do you know who owns half of all the prime commercial properties in certain parts of London? It's mainly this group of overseas investors.

More recently, China and India have contributed billions to the UK economy. These new breed of Asian investors are attracted to the UK market, because London is one of the top financial cities in the world. Our government isn't corrupt and we don't seem to have any major political issues that interfere with commercial property investments in other countries.

Also the biggest UK financial institutions are very active in this sector. Companies that spring to mind include Norwich Union, Scottish Widows, and General Insurance. Each of these companies are investing millions in commercial property, like retail parks, office buildings, and industrial estates.

As you can imagine I can go on and on, but I think you understand my point. As with residential property investments, the demand for investing in commercial property is booming, both globally and here in the UK.

If you want to keep up-to-date with what's happening in both types of property markets, the RICS publishes regular market surveys of both residential and commercial property sales. You can download the research papers for free from The Royal Institution of Chartered Surveyors website (this will open in a new window).

When you're ready to buy a commercial property, remember that the market runs on borrowed money. Many lenders are keen to provide financing that is secured on a well-let building.

Most commercial properties are sold in the following venues:

• Auctions Houses
• The Internet
• Private Treaty
• Estate Gazette

To determine whether investing in commercial property is viable, you'll need to calculate each of the following:

• Yields
• Loan–to-value ratio
• Gearing
• ROI (return on investment).

Finally, if you're like most of us, you don't have access to large sums of money. In this case, you may want to consider investing in commercial property indirectly.

Investing indirectly appeals to most small investors, because one of the biggest hurdles to investing in commercial property is the high cost of entry. The average price of a good investment is around £500,000. Consequently, some investors prefer to avoid the headache of managing a direct investment and instead invest in a variety of indirect vehicles.

Return from Commercial Property to Home Page

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