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Category: commercial mortgages
Specialist lender, Shawbrook Bank, has released data showing that one in five landlords are considering investing in commercial property and those already investing are planning for expansion.
In a world where any business must diversify to succeed, it would seem many within the landlord community are just as determined to make changes, for the good of their investments.
With a backdrop of immense change in the economy and uncertainty in the property market, those invested in property have had cause to assess their investments, to ensure they remain profitable. With so much in flux, it is unsurprising to see that some see the solution in diversification in their property mix.
Proportion of landlords considering commercial property
According to research conducted by Shawbrook, 19% of landlords (one in five) surveyed are considering investing in commercial property, with 37% of that cohort saying it was for diversification reasons.
What’s more, of those who already own commercial property, 35% said they were planning to expand the number of their commercial assets ‘in the near future’.
Given investing in commercial property tends to be an easier path for those with experience in this area, one might expect that those with bigger portfolios would be the ones to fuel the growth. However, this is not wholly the case according to Shawbrook, whose data shows that the level of interest in commercial investment comes from a broader audience.
The survey data shows that 36% of all landlords, irrespective of their existing properties, had observed a rising demand for commercial property, and see it as a good investment.
Whilst commercial property can carry greater risks than a standard buy to let property, they typically enjoy higher yields, so it is good for the sector that prospective investors are seeing the potential in them.
According to the findings from the survey, Shawbrook found that 25% of landlords felt that there are not currently enough properties of a suitable quality for businesses to use. But, this needn’t be a barrier to investment.
James Doggett, commercial specialist at broker Commercial Trust, made this observation:
Bridging loans are an ideal solution to raise funds for property refurbishment, and have not been impacted as significantly as mortgage rates. So, taking on a commercial property under market value and in need of updates could benefit an investor.
"Where the property can be secured at a competitive price, and cost effective upgrades made, it may be possible to achieve a higher yield – because once you have increased the value of the property, it becomes more desirable to a tenant, as a result you can charge market rent on a property that even with works has cost less than market value.
"Similarly, commercial mortgage interest rates have been less susceptible to the impact of the rising Base Rate, commercial rental yields can also more favourable, which explains the increased interest in commercial property shown by the recent survey completed by Shawbrook.
Landlord reasons for investing in commercial property
The motivations behind landlords considering commercial property were not just for diversification purposes. Shawbrook shared that 29% of landlords saw it as a chance to support their local community.
In terms of type of commercial property, 33% of landlords surveyed said they would invest in small retail space and 30% were planning to invest in large retail space. Shawbrook make the argument that in so doing, landlords could be fundamental in reviving the UK’s high streets, which are currently suffering from the growth in online shopping.
The bank also cites changes in office space needs as a potential path for landlord investment, highlighting that since hybrid working has grown, off the back of the Covid pandemic, businesses are looking for more out-of-town office spaces. 36% of landlords they surveyed said they were looking at office space investments.
28% of landlords were considering industrial or manufacturing units, and a further 28% were looking at factories or distribution space, the latter benefiting from the shift to online retail.
Further reading and investment help
If you would like to learn more about investing in commercial property, the following Commercial Trust guides may be of interest:
- Should you invest in commercial property?
- What are the most profitable types of commercial property investments?
- Commercial investment mortgages: a guide for investors
- Buying semi-commercial property: a guide
If you are ready to start an application for commercial finance, our advisors can help you straight away, over the phone, simply send us your details for a call back.