Buying Commercial Property in the UK
Investors from all over the world often choose to buy commercial properties in the United Kingdom. The country is one of the leading destinations in the international real estate market. It has a long-standing good reputation and offers its investors the best available options.
More than 80% of the UK’s GDP is generated outside of London. This requires production facilities, warehouses, laboratories, clinics, educational institutions, supermarkets, restaurants, pharmacies, etc.
This article is your guide to buying commercial property in the UK.
Key Factors When Choosing Commercial Property in the UK
The manufacturing sector with its logistics and transport infrastructure always brings high returns.
Shopping and entertainment centres and outlets with various shops located in areas with high footfall are a good investment.
If you think of purchasing commercial property in a residential area, you will not go bankrupt either because you will be able to rent it out for a shop, café, pharmacy, dental or veterinary clinic, etc.
In general, when choosing a commercial property, you need to consider several factors that influence its ROI: transport infrastructure, land area, neighbourhood, communications, sanitary infrastructure, footfall, etc.
Offices and Warehouses Are One of the Most Popular Investment Options in the UK
Brexit and COVID-19 pandemic made a lot of foreign companies leave London and open offices in other cities. Given the high supply and low demand, the London real estate market got oversaturated.
At the same time, such cities as Liverpool and Manchester profited from the situation. There were a lot of modern and comfortable offices for rent that had been built in recent years, and the rent was lower than in London.
Buildings with cafes, banks, shopping and entertainment centres are in particularly high demand. If located in central or highly populated areas, they generate the highest return.
If you do not have much experience with investment in the UK, we recommend you start by purchasing a warehouse. The whole process for this type of commercial real estate is relatively simple. Besides, the demand significantly exceeds the supply.
New warehouses are constantly being built in the UK. They can be of various sizes and even customised to the client’s needs.
Recent statistics show that the demand in this real estate sector is 28-30% against 17-19% of the supply. This guarantees a short payback period.
One-Stop-Shop Solution for Experienced Investors
Prominent investors often buy an investment bundle that includes a shop or a café as well as apartments and offices in the same building.
To buy a medium-sized building with several apartments and offices and units on the ground floor for a small shop or a cafe not far from the city centre, you will have to pay around £10,000,000.
To increase return, investors often build an extra floor. This can increase the annual net profit to 9%.
Investment bundles can be beneficial in several ways: the property value increases, and you get a chance to buy a café or a shop in a central location that are rarely put for sale individually.
Buying Parking Space in the UK
Investing in parking spaces in central and greater London, including parking space leaseholds near airports, has always been one of the most popular and safe options. The demand in this sector of the real estate market exceeds the supply by far which guarantees a profit.
The minimum price of a parking space is about £10,000. In some areas, it can go up to £25,000. Annual rental income can amount to 8-12% with low maintenance costs and the efforts required.
If you purchase a parking space, you will not have to resolve administrative and commercial issues yourself since these will be taken care of by well-known British parking operators such as National Cars Park (NCP) and Q-Park.
You can always sell your parking space which will increase its value by 5-6%.
Investment in Built Student Accommodation or Off-Plan Modern Buildings
In the UK, it is quite profitable to invest in student accommodation. The British education system is one of the best in the world. It attracts a lot of foreign students who hope to get a brilliant higher education and find a prestigious job in the future.
With the weakening pound, even more foreign students choose to relocate to the UK to study. In 2019, a special program was introduced that aimed to increase the number of foreign students coming to the UK from 480,000 to 600,000 by 2030.
Most students in the UK live on campuses within a walking distance from their universities. They have a better social life and can study together with their peers which is more effective.
Before 2010, students lived on campuses or residential estates. However, there was a huge shortage of rooms. That started a construction boom of purpose-built student accommodation in the UK.
But even with this major change, only one in three students in the UK can get a room in student accommodation.
Modern purpose-built student accommodations have a lot of amenities including on-site cinemas, gyms, laundry facilities, bicycle parking, resident lounges, quiet study rooms, parking lots, etc.
Growing numbers of foreign and local students fuel the demand for cheap properties that investors use as a potentially profitable source of income.
Investment in student accommodation usually brings an annual return of 7-9% with demand only growing. Profitability can be ensured through professional property management offered by local authorities and proximity to universities.
British law protects the investor’s interests in this real estate sector. Properties are maintained by local managing companies.
Student accommodation costs £60,000 to £120,000. If your property is located close to a prestigious British university, you will get a stable and high return for the years to come.
Investing in Care Homes
Care homes are developing into one of the most popular investment options on the commercial property market.
A healthy lifestyle prolongs life expectancy. There are a lot of elderly people now in the UK who need professional care and support.
Annual return from this type of commercial property is 8-10% which is even higher than from student accommodation.
When you sign a leasehold for a care home (10-25 years), your agreement stipulates your annual return and ensures that you can sell it back to the operator in 10-15 years, if required.
A care home can cost £70,000 to £150,000.
Commercial Property: New Trends
Some investors no longer look for traditional investment options such as offices, restaurants, hotels, etc. Life sciences real estate is a rapidly growing alternative to established investment choices.
Life science is a branch of science that deals with living things and aims to improve their quality of life. It encompasses biology, medicine, healthcare, pharma, the food sector, etc.
Life science has a direct link with real estate since it needs manufacturing facilities, modern laboratories, customised offices and warehouses.
Several factors make life sciences real estate attractive for investors:
- Constant growth – according to the US industry reports, the volume of investments in life sciences real estate has increased by 4.6 times in 11 years – from $3.7 billion to $17.4 billion. Product prices have grown three times while the number of specialists working in this sector has doubled and continues to grow.
- Resilience to recession – according to Newmark Knight Frank, in 2020, more than $10 billion have been invested in life sciences real estate which speaks for the sector’s stability amid the crisis.
- Rising demand for medical innovation and a growing number of pharmaceutical laboratories.
Companies working in the life sciences sector need labs with special sterility, noise isolation and temperature conditions, etc. Therefore, they look for long-term lease agreements with reliable partners that can be beneficial to investors.
UK Life Sciences
Since 2020 more and more investors have been interested in the Knowledge Quarter (KQ), London’s Silicon Valley. This cluster, founded in 2014 by the British Library and the University of the Arts London, focuses on the development of medicine, pharmaceuticals, biomechanics, nanotechnologies, etc.
The Knowledge Quarter in Liverpool is also very popular among investors. To attract more investments and oversee the expansion and development of science and technology facilities, the Knowledge Quarter Development Company (KQDC) was set up in 2018.
Purchasing Commercial Property in the UK with Imperial & Legal
If you are a non-UK resident and want to invest in British commercial real estate, you will need help from experienced advisors and real estate agents who will check the agreement and the chosen property for you.
Besides, with professional support, you will be able to buy and manage your property remotely and be sure that it’s taken care of.
FAQ about Commercial Property in the UK
How Can I Purchase Commercial Property in the UK?
Note that at least one-third of commercial real estate for sale in the UK is operating businesses.
There are two ways to buy commercial property in the UK:
- Taking ownership of the property by signing a standard purchase and sale agreement.
- Purchasing shares or equity rights.
If an investor buys an operating business, they acquire all the rights and responsibilities of the previous owner.
Can I get a commercial mortgage to buy commercial property?
Commercial properties are usually not cheap. However, an investor can take out a mortgage at a relatively low rate of 3.5%.
More than 90% of purchases in the UK are mortgaged. British banks can give foreign investors 80-90% loan-to-value mortgages on repayment terms of 30-40 years. The bigger the deposit, the lower the mortgage rate can be.
A 25-40% deposit and confirmed credit rating will guarantee that a British bank will issue a loan to you.