Whybrow CEO Ewan Dodds BsC FRICS shares his thoughts on the benefits to becoming a commercial landlord.
Becoming a commercial landlord can be a lucrative and rewarding venture, offering a range of advantages for those willing to invest time and resources into the commercial market. But it’s not for the faint hearted and investors must be prepared to take the highs with the lows.
Commercial properties, ranging from offices to retail, factories to leisure outlets and land to more unique and more bespoke buildings all provide unique benefits that set them apart from residential properties. In this blog, I will explore the various advantages of being a commercial landlord and how it can be a provider of financial opportunities.
- Steady Income Streams:
One of the primary benefits of being a commercial landlord is the potential for steady and reliable income streams. Commercial leases typically involve longer-term agreements than residential leases, with institutional terms often up to 25 years. This stability can be particularly appealing for landlords, providing a consistent source of revenue that allows for better financial planning and investment.
- Higher Rental Yields:
Commercial properties generally offer higher rental yields compared to residential properties. The rental income as a percentage of the property’s value is often more attractive for commercial buildings and this can result in a higher return on investment, making commercial real estate an appealing option for investors seeking robust financial gains.
- Diversification of Investment Portfolio:
Diversification is a key strategy for mitigating risks in any investment portfolio. Owning commercial properties allows investors to diversify their holdings beyond traditional assets like stocks and bonds. The commercial real estate market tends to operate independently of other financial markets, providing a valuable hedge against economic downturns.
- Long-Term Appreciation:
Commercial properties, especially those in prime locations, have the potential for long-term appreciation. As the surrounding area develops and the demand for commercial space increases, the value of the property can rise substantially over time. This appreciation can significantly contribute to the overall profitability of the investment.
- Professional Relationships:
Building relationships with commercial tenants often involves engaging with businesses and professionals. This can lead to valuable networking opportunities and a deeper understanding of various industries. As a commercial landlord, you may find yourself connected to a network of entrepreneurs and business leaders, potentially opening doors to new ventures and collaborations.
- Property Management Efficiencies:
Managing commercial properties can be more straightforward than residential properties. Commercial leases often place responsibility on the tenant for maintenance and repairs, relieving landlords of some of the burdens associated with property management. This can result in cost savings and a more efficient management process.
All of this does of course come with a health warning and while investment is not as above, for the faint hearted, the rewards can be great but equally but the risks must be full understood. These risks include the potential for voids, unpaid rent and service charges and the costs of litigation when things do go wrong.
These must too be planned for and investors must plan and investigate the market comprehensively and they should take advice from those Chartered Surveyors with experience of market conditions and evidence. Would be investors will always consult their bank/ financial organisations and accountants over the funding, their lawyers over the legal minutiae and the minefield of hurdles to be overcome, but then they often choose to negotiate direct themselves with vendors/landlords or their appointed agents themselves running the risk of agreeing non market led terms.
Becoming a commercial landlord offers a range of benefits, from the potential for higher rental yields to long-term appreciation and diversification of investment portfolios. While the commercial real estate market comes with its own set of challenges, the rewards can be substantial for those who navigate it wisely. Whether you’re an experienced investor or a newcomer to the world of commercial property, Whybrow can support you in exploring the opportunities to support maximise your financial potential.