The benefits of investing in commercial property over residential
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We may be biased of course, being a specialist commercial property listing site, but here are 5 benefits of investing in commercial property over residential.
First of all let’s define both residential and commercial property.
Residential property is a building that is for individuals or families and includes houses, flats and purpose built student accommodation.
Commercial property is a building for business purposes and includes industrial units, offices, restaurants, medical centres and retail units.
Secondly, commercial property is often strongly linked to the health of the economy, and therefore, the state of the commercial property market can serve as a reliable gauge of both business and investor confidence in the economic outlook.
And finally expected tenancy reforms for the residential market could come into effect this year providing more protection for tenants and major capital tax changes.
5 benefits of investing in commercial property over residential.
- There is potential for higher rental income in commercial property compared to residential. If you have office or retail space in a prime location businesses are often willing to pay more to be based there especially for new and sustainable buildings.
- Often a commercial lease will be for a longer term compared to a residential lease offering more stable income for a commercial property landlord. Also with industrial units the turnover rate is low because occupiers set up the space for their specific needs. It should be noted that as commercial property leases are negotiated in several phases they can take longer to set up.
- A tenant in a commercial property is a professional tenant usually paying maintenance for the building they occupy. This can mean they have a vested interest in maintaining the property in good condition. However it does depend on the success of the business. A successful business will be a better tenant than an unsuccessful one. A commercial property lease can contain a dilapidation clause. This states that when a commercial property lease ends, the tenant is obliged to carry out building repairs and redecoration so the property is back to how it was found. It should also be noted that from 1 April 2023, all commercially rented properties must have a minimum energy performance rating of ‘E’ or above.
- Commercial properties have the potential to appreciate at a faster rate than residential properties. This is because commercial properties are valued based on their income potential. If the property is generating high rental income, the property value will increase accordingly.
- There is often less competition in the commercial property market due to it requiring a large initial investment. This can make it easier to find and secure quality tenants.
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