The Covid pandemic has resulted in many people reconsidering their options. An increase in buying residential property as an investment has been well-reported, but there has also been an uptake in interest from those looking to invest in commercial property.
Here we provide some advice for first time commercial property investors on what to look out for and the sensible steps to take to protect your interests.
What to look for when buying a commercial property
If you are buying for an investment (rather than as an occupier), you will of course want to generate a return. Doing plenty of research and due diligence is the first step to being able to achieve this. You will also need to decide on your strategy – whether it’s to buy the property to lease to a tenant or buy to renovate and re-sell.
There are many factors to consider – from the type of property to its location. In the current climate, retail and office units are in less demand, whereas demand for warehouses and small light industrial units are soaring.
Location will always be an important factor when it comes to finding a suitable tenant – looking into recent commercial activity in the area and researching what is available should act as a useful guide.
The use class of the property will also be important as this will dictate the type of tenant you are able to attract. Recent changes to the ease of changing use class under permitted development rights are worth researching as this has increased flexibility for certain types of property and therefore potential occupiers.
Once you find a property you are interested in, a Chartered Surveyor can advise on the location of the building and use their resources to access recent sale activity in the area. Property checks will reveal any restrictive covenants, planning restrictions or other issues that could affect your redevelopment plans.
What steps should you take when buying a commercial property?
Enlisting a RICS Chartered Surveyor is a crucial part of the due diligence process when buying a commercial property. A Building Survey is a must as it informs buyers on the condition of the property; highlighting any defects that may be present at the time of survey. A Pre-Acquisition Building Survey Report also looks at any areas that may need future maintenance in the short to medium term; describing observations in detail as well as advising on how to deal with any remedial works that may be necessary.
The size and measurements of the property will also be checked – it is surprising how often these differ from those included in the agent’s details!
The external areas of the property – such as a car park or forecourt – can also be checked for condition and the property’s boundaries compared to those included in the particulars.
When buying a commercial property, compliance with regulations is particularly important and can be costly to rectify. For example, compliance with health and safety regulations, and energy efficiency standards. With MEES regulations on the way for all eligible commercial properties in 2023, this is an area that needs to be investigated and accounted for.
Depending on the findings, a Building Survey Report may form part of negotiations before a sale is agreed, especially if major structural flaws are discovered. This may bring the potential to save a significant amount on the purchase price.
Buying commercial property for investment can prove extremely lucrative but can also carry significant risk – especially if you don’t take the time to thoroughly investigate its condition and do your due diligence before proceeding.