Many property investors prefer to invest directly in residential property, but commercial property can offer a simpler and cheaper alternative.
Commercial properties cost millions of pounds to purchase or build, and can command huge rental incomes, but in most cases, they’re out of reach of smaller investors to buy outright. Therefore, most invest in commercial property through investment funds, like unit trusts, OEICS or investment trusts.
These funds either directly own properties and pay you returns based on their growth in value and rental income, or buy shares in property related companies, paying you returns based on the growth in the value of the shares and the payment of dividends.
A small sum of around £500 is needed to invest a lump sum in a property fund, or £50 per month for regular savings.
Different types of commercial property?
Commercial properties fall under three categories:
- Retail property – It includes shopping centres, supermarkets, retail warehouses and high street shops.
- Office property – Built specifically for businesses, they require high speed broadband connection and related business facilities.
- Industrial property – Industrial estates and warehouses come under this.
Why is commercial property a good investment?
The UK benefits greatly from a longer lease structure compared with Europe and the US. Typical lease length in a London office is generally between 10 and 15 years, while the average lease length across all of the UK is approximately eight years.
This is much longer than that from residential property, which generally has leases of six months to a year. This structure potentially offers more security relative to the returns offered by shares, as income is guaranteed at a set level for an extended period of time.