If you are considering investing in commercial property in London, you will come across a host of options, making it a challenge to decide which type of property will give you the best return on investment. In this article, we’ll be comparing London property investment options, looking at factors affecting ROI, and exploring a few of the most common mistakes when investing in commercial property.
Types of commercial property for investment
Commercial property comes in a variety of classes. From retail for sale, to office, industrial, multiple occupancy, special purpose and mixed use, they’ll all have varying yield potential, differing levels of demand and a range of associated costs. The key is to decide which London property investment type will best suit your budget, your long term plans, and your goals in terms of return.
Office space
Office space is one of the most popular commercial property types. The investment return potential will vary depending on the size of the property, the location, services, parking availability and rental rates. In the most in-demand locations such as London, office space will generally achieve higher rental rates, although the purchase price is likely to reflect that.
Featured office for sale in London:
1 Hobart Place, Belgravia, London SW1W
A long leasehold investment property in a self-contained, attractive Grade II listed former townhouse nestled in a prestigious locality, surrounded by hotels, restaurants and well-known retailers. This extensively refurbished building provides high quality office accommodation, set around beautiful period features.
Retail space
If you are looking at retail for sale with a view to letting it out, you could well find this a highly profitable commercial property category, especially if it is located in prime shopping areas with consistent high footfall from the local working population as well as visitors and tourists.
Industrial property
London investment property under the industrial category covers the likes of factories, distribution and logistics centres, and warehouses. This type of property can be very profitable, especially if strategically located close to major transport hubs, shipping docks, motorway junctions and airports. Even better if there are local facilities to keep workers happy, such as local neighbourhood shops and services.
Mixed-use property
Mixed-use property refers to commercial property with a variety of uses. The most popular is retail/office, but others may include industrial/office and residential/retail.
There is good investment potential for mixed-use commercial property, as they offer multiple income streams. For London investment property in particular, mixed-use can be particularly profitable.
Featured mixed-use retail/office space for sale in London:
29 Pall Mall, St James’s London SW1
This property is well-located on the north side of Pall Mall in the heart of prestigious St James’s. Just a short walk from St James’s Square and surrounded by numerous London Underground stations, the building features a self-contained entrance, office and retail space, a large boardroom and a kitchen and WCs.
What are the main factors affecting return on investment for commercial property in London?
A good return on investment for commercial property is said to fall between 5% and 12%, depending on supply and demand within the local market, and general property market conditions. Whilst London investment property type is one of the leading factors when it comes to determining profitability, there are various other factors to consider.
Location
Location has to be one of the most crucial factors when it comes to potential return on London investment property. Properties located in area with excellent local amenities, convenient parking and good transport links tend to generate greater rental yields and therefore profitability.
High footfall is particularly important when looking at retail for sale, or office space that will be used by a service business that relies on local custom, such as a law firm or estate agency.
Rental Rates
Rental rates are another key deciding factor when it comes to the profitability of London investment property. Properties with long term leases and higher rental rates are best for investors. It is also wise to look at rental growth potential, especially when considering long term gains.
Maintenance and Repair Costs
It’s important to look closely at potential maintenance and repair costs, as they can easily eat into profits if they are the responsibility of the landlord. If you opt for a commercial repairing and insuring lease that places the responsibility for maintenance and repairs on the tenant however, then this will not be an issue. It may be slightly less appealing for marketing purposes, however.
The most profitable and attractive commercial properties are those that have a good Energy Performance rating, so do look at this at purchase stage, as well as potential to make cost effective improvements if necessary.
Market Demand
Demand for London investment property will vary depending on the specific location, property type and current economic conditions. Speaking to a commercial property expert with specific local market knowledge is a must, as they will be familiar with current demand, as well as potential gaps in the market that you could take advantage of as an investor.
Common mistakes to avoid when investing in commercial property
Investing in commercial property is a significant move. Whilst it has the potential to be lucrative, there are mistakes to avoid if you are going to enjoy the best possible return.
For example, overspending on the purchase and then on subsequent renovations could leave you with a lot of catching up to do when it comes to realising a profitable ROI. It is a good idea to have the property appraised for market value by a valuation expert in the know, and also to discuss any refurbishment plans with a local property expert to ensure they are in-keeping with local demand.
Another common mistake is failing to engage with the tenants. If you are strapped for time and do not have the resources to adequately manage the property and deal with day to day tenant needs, it is a good idea to engage the services of a professional property management agency. Poor property management can cost you more in the long term by way of lost tenants and added marketing costs to replace them.
Finally, overlooking due diligence essentials can be another costly error. Failing to engage the services of a surveyor to ascertain important matters such as structural integrity, the condition of the electrics and plumbing systems and local factors like flood risks could prove to be an expensive oversight.
Looking for London investment property? Talk to Mellersh & Harding, the London property specialists.
At Mellersh & Harding, we have an extensive portfolio of London investment property to suit a variety of investment goals and budgets. Why not get in touch today to discuss your individual requirements? You can reach our dedicated team on 020 7522 8500.
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