There are many onerous changes coming to the residential property market, and this could see Landlords turning to commercial property for capital investment. Vanessa Penn, Managing Director, explores the respective merits...
Commercial property tends to attract longer leases, which brings more continuity in terms of income, whilst FRI leases limit property maintenance costs.
Yields on commercial property are generally higher than residential, dependent on Tenant covenant and location.
Reform - in the shape of the 'Renters (Reform) Bill 2023-2024' - is the most significant cause for investment change. This produces a series of challenges for Landlords; significantly; the abolition of Section 21 'no fault' evictions, more contestable rent increases and stricter obligations for repairs and compliance.
Residential investment is becoming more difficult and the returns are much less predictable, with a future of minimum base, EPCs, rent caps and adjustment to leasehold rights.
With commercial investment, there tends to be less churn of Tenants, and the performance of the investment is not linked to the wider housing market, rather to the performance of the Tenant’s business.
Commercial investments are gaining momentum for private Landlords and Trusts, who are turning away from the buy-to-let residential model.
For example, Penn Commercial is marketing three commercial units on a popular business park in Felixstowe, Suffolk. Currently under offer, these fully-let units - sized between 65 and 137 sq m (699 - 1,474 sq ft) each - represent a strong investment portfolio, with a freehold purchase price of £365,000 and an annual rent roll of £29,380, an ideal asset for a SIPP or SSAS.