Guest Blog: 4 reasons to invest in commercial property
A guest blog from Allcott Commercial
More and more people are beginning to turn their attention to commercial property as a popular asset and viable investment opportunity with big returns. This article seeks to address a few of the reasons why commercial is such a popular investment, with these 4 reasons to invest in commercial property.
Portfolio Diversification
Investing in commercial property will help you to diversify your portfolio. Diversifying your portfolio will reduce risk by spreading your investment across different assets. Commercial values move independently of other assets so are not correlated to other areas of the stock market that may become unstable. As a result, their values don’t lull with the rest of the market and as such can create a stable and developing income. Risk can also be reduced if you spread risk across a number of different properties, as if one isn’t occupied, you can still generate income from others. You can further diversify your portfolio by investing in a range of different types of commercial property. You can invest in retail spaces, supermarkets, shopping centres, high street shops, industrial warehouses, offices and student accommodation.
Options
When it comes to investing in commercial property, there are many different options to choose from to suit you. The three types of investment opportunity are direct investment, direct property funds and indirect property funds. If you choose direct investment, this involves investing directly into a property or share, but these are often not accessible for smaller investors. Investing through a direct fund, also known as a brick and mortar fund, involves investing in a fund which invests in a portfolio of properties, in which you are paid from rent and when the properties rise in value. An indirect fund, such as REITS, invests in shares of property companies and developers and make money through the stock market, where you gain income from growth of shares.
High Income
Commercial property can generate a high income due to longer leases which increase stability and guarantee a larger rental income. In comparison to residential investment, with leases of 6-18 months, commercial leases can last up to 25 years to bring high rental yields over the long term, and increased security with a guaranteed income over a long length of time. What’s more, many commercial leases have ‘upward-only’ rents which rise with inflation, in which rents automatically get higher over time. The longer leases also mean your property is occupied for longer periods of time, allowing for greater stability. Commercial property also generates capital growth as property value increases naturally over time. In the years 2014 and 2015, investment returns for commercial property were 10% plus.
Low Hassle
Commercial property investment is a lot less hands-on and lower hassle than residential property. There is less maintenance for the direct investor as tenants are responsible for covering the costs of maintenance and repair, rather than the owner. Maintenance and repair costs can be an added expense that the owner need not pay. The occupier will instead maintain the space and refurbish it to suit their business needs. With direct property funds, hassle is reduced even further, as it is the responsibility of the manager of the fund to source tenants, negotiate costs and find properties.
There are many reasons to invest in commercial property. You can diversify your portfolio to reduce risk, there are many options that you can consider to suit your needs, investment can generate a high and stable income over a long period of time, and there is a low level of hassle involved in maintaining the property once you invest. It is clear that commercial property makes a very attractive investment opportunity.
Allcott Commercial is a building consultancy providing project management, building surveying, architectural and structural engineering services to a range of property investors, occupiers and developers throughout England and Wales. We can help you to make an informed investment decision.
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Very intersting info on commercial property, thanks for the advice.
Investing in commercial property is one of the great investments ever in my opinion. Aside from the fact that it is a booming business, commercial property such as serviced offices, virtual offices, build to suit, disaster recovery facility, co-working, etc. are variants of offices that are on trend or in demand for local and foreign business, and this type of trend will last for a long time.
Interesting article thanks for sharing, I also though commercial property would be more complex and difficult than residential!