Many buy-to-let landlords faced with increasing costs are looking into retail property investments, but potential investors need to consider the advantages and disadvantages.
There are around 539,000 retail outlets in the UK, which represent about 10% of all UK businesses. In 2016, £4.5bn was invested in buying retail premises. This the highest amount invested since 2010.
Commercial property often has higher rental yields than residential. Business tend to sign long leases and are also responsible for the general maintenance costs. One investor, Gary Smith, who has both commercial and residential property, said BT Lifestyle in February 2017:
“I have bought a couple of shops that are already let on relatively long term leases to tenants that have been there a while. Commercial property is easier as you are less involved with the day-to-day management of the site.”
Though profits can be greater on commercial property, there are risks. If a tenant leaves a retail property, then it can take a long time to find a new tenant, with the property earning no income until a tenant is found. Business rates may not be payable for the first three empty months, but will be charged after this period.
Many town centre retail locations are too expensive for many private landlords. Out-of-town location are cheaper, but rents are also lower and tenants more difficult to find.
There are a number of commercial mortgages available for purchasing commercial property. A broker can provide advice and find the best deals.