The Complete Guide To Commercial Property
Commercial property plays a big role in the world of business and industry. From boutique offices to towering glass buildings reaching towards the sky, there’s no shortage of space to choose from to make your business a success. It’s not just the cities that enjoy plenty of commercial property developments either, with towns and rural locations all seeing big investment to bring more people to the area.
Ecommerce has seen a surge, resulting in more industrial and warehouse storage space being needed – and in more locations than ever to provide quick and reliable services to customers. Leisure and hospitality businesses need physical properties for their customers to visit, and these are needed everywhere – from bustling city centres to local communities, gyms, bars, restaurants, cinemas, and many more are expected by those residents.
Is your business in a position to take hold of these opportunities? You might want to move to a new location, expand to attract a new audience, or simply adjust for growth while planning for the future.
Whatever your plans may be, we’ve put together the complete guide to commercial property to make sure you know what to look for with your next move.
What Is A Commercial Property?
A commercial property is a building or area of land with a primary purpose of generating profit as opposed to a regular residential purpose. This allows businesses and organisations to have a physical location for their employees to work from and provide services, products or experiences – depending on what the business does.
There is some crossover here that you may already have caught on to; blocks of flats. The owner of this building may or may not make profit depending on the agreement signed for the land or finished building. While property investment opportunities may arise for these buildings, they won’t be something we focus on much in this guide as it’s not a common option for many business owners.
What Are The Different Types Of Commercial Property?
No two businesses are alike – even those operating in the same industry or sector. They will have varying needs from a commercial property, and different ideas of how to use the space they have. This is most obvious with retail and hospitality businesses – part of what they want to create is a good customer experience, and the property they are in is a big part of that.
Location, size, and shape all play a part in this, but depending on what the business does – and what experience you want customers, clients, or visitors to have – you could find that certain commercial properties are not suitable. That’s why it helps to know what they can be used for, or are designed for.
The types of commercial property include:
While some properties can be converted into other uses, you have to decide if this is a good use of your time and finances, although good contract terms can make this a more viable plan.
Finding A Great Commercial Property
Finding a commercial property that suits the needs of your business now but also in the future can be a challenge. Once you have a clear idea of what you want to do with your next space, whether that’s office, hospitality, leisure or something else, you can begin searching for the next home of your business.
However, even the best space can end up a flop if other factors aren’t taken into account, such as:
- Location
- Ease of access
- Parking
- Capacity
- Storage
- Cost
- Length of contract
- What’s nearby
While what you envision for your business matters, what’s just as important is what your target audience wants from you, too. If you don’t meet their needs or expectations, you’ll lose them to the competition.
If customers are coming for a specific service or reason, do you know how long it will take from start to finish? What else will motivate them to come to the area? Is there good parking? Will you have the space for a lot of customers or products on site? How long will you be in the property for? Answering these questions will make it easier to ensure your next location is the right one.
Commercial Vs Residential Properties
Each property is designed and built with a specific use or purpose in mind, but there is a clear divide between commercial and residential properties and there are strict rules on how they should be used to ensure a fine balance is achieved in a given area.
Demand for properties of any kind is high, and because residential properties can often be cheaper than commercial options, the temptation is there to opt for a house and convert it for business use – however, this isn’t always easy or even possible.
The worst scenario is buying or renting a property and then finding out that you can’t use it the way you wanted, or make the changes you envisioned to make it the perfect place for your business. Make sure you understand the regulations and rules around every property you’re considering.
How Is A Commercial Property Different From A Residential Property?
Commercial properties differ from residential buildings in a number of ways, most obviously in the size and layouts. They often don’t need sleeping facilities, or as much kitchen space per person as a dwelling would. Access routes, wiring, and building structure will all be different, too, as commercial properties are used for work rather than living in.
From the outside, it might be harder to tell if a building is used for offices or apartments, but the windows usually offer a good indication – with commercial buildings seeing higher concentrations of windows across a property. It’s not a universal rule, but apartments and residential properties tend to have one or two windows per room, depending on their size.
The location can also make a difference, with commercial properties on lower levels or in areas with high footfall, as opposed to residential properties in more urban areas. This isn’t always the case, as residential properties can be found almost anywhere in a town or city.
How Are Each Type Used?
The main rules that govern commercial and residential properties are around how they can – and should – be used.
Commercial properties are for businesses to make profit from, as mentioned earlier. This can be in the form of products, experiences, services, or combination of these options. They are not designed to be lived in and won’t meet basic safety standards for the amount of time people would be inside.
Residential properties, then, are for the opposite. They are designed with different rooms to make them as comfortable as possible. Bathroom and kitchen ratio is increased over the same amount of space to suit a single household. In the same vein, they are not suitable for businesses to operate from.
Can Residential Properties Be Used For Commercial Purposes?
In short, residential properties cannot be used for commercial purposes – and the same goes for vice versa.
During the planning stages of property development, care is given to the balance between commercial and residential property levels. Demand has been increasing year on year for both types, and altering the balance will have negative effects on local areas and communities.
In some instances, a case can be made to change the purpose of a building. This will nearly always involve a lot of work to make sure the property will be suitable for its intended use. You can find out more about changing the use of a property on our blog.
How Much Does A Commercial Property Cost?
The cost of renting a commercial property varies depending on a huge number of factors, such as:
- Location
- Size
- Type of property
- What’s nearby
- Available parking
It’s very difficult to find the perfect combination of factors at the price you want, but not impossible when you have the right experts and support helping you.
In most cases, it’s a balance between price and certain factors to maximise the impact on your business. A retail store might benefit more from town centres or retail parks, but this could be more expensive. If the higher foot traffic and sales make up for this, it becomes a great option.
Similarly, hospitality businesses benefit from being in an area close to offices or in sought after areas. This is also more expensive but the convenience will help bring people through the doors.
Read more about how these factors influence the cost of a commercial property.
Working Out The Value Of A Commercial Property For Your Business
The cost of renting or buying a commercial property is one of the biggest payments a business will face, whether it’s a one-off or a monthly outgoing. Knowing whether it is a price worth paying will play a large part in determining whether that property is right for your needs.
Unfortunately, it’s not as simple to just take your monthly rent or mortgage payment and compare it to the sales or profits that have been made, or are projected to be made, to determine the value of a commercial property.
From a purely financial perspective, you will need to factor in other costs related to your chosen property, such as energy, security, infrastructure, and decorating. They will be different from your current or previous commercial property, so they need to be taken into account when determining the financial risk and reward of the move.
Similarly, take the area at large and how it might change during your time there. Will more people be drawn into the area? Are new properties being built to add more incentive for people to visit? Is there a reason to remain for a period of time? All of this will be harder to measure at first but estimates can help make a case for your preferred property.
Is It Better To Rent Or Buy A Commercial Property?
The reality is, most organisations rent commercial property. This does mean making monthly rent payments to the managing company or building owner, but it reduces the responsibilities you have in regards to the property.
If you are in the position to buy a property, this can be a greater long-term investment. The money paid will be invested in the business, and if you know for sure being in a specific location will be advantageous then it makes sense to put down roots. It’s a huge commitment but the advantages over time can make it worthwhile.
Whether you should buy a commercial property or rent one will ultimately depend on your business and its current situation. We go into more detail on buying or renting commercial property on our blog, but here are two things to keep in mind.
Understand What Your Business Needs To Succeed
Moving to a new property is a big decision, and you need to have a clear idea of why the time has come to move on. It might be rental increases at your current location, or you might want to reach a new audience. The facilities might not be up to scratch, or it’s simply just too small for the growth you’ve experienced.
Your business plan should help direct you to the right commercial property. You’ll know how you expect your organisation to grow, and what you need to achieve that success. This information can help you decide where your business should be, what resources you need and where best to locate yourself to get to that stage.
Take A Realistic View Of Your Current Assets And Finances
Given the cost of buying a commercial property, it’s not a decision to take lightly. While renting commercial property means you don’t have the same large, upfront cost, you will be using a building that could be sold in the future – or find that it becomes too expensive and requires you to move when you don’t want or expect to.
Once you know where your business should be, buying a commercial property is a good way to create stability, but you should make sure you have the finances to complete the purchase without putting the company at risk.
Once you know what assets you have, you can consider what you expect to acquire in the future – but be aware that those forecasts might change. Basing a decision to buy a property on them could cause financial stress down the line, so create a buffer to protect your business.
Is It Worth Investing In Commercial Property?
Another option is to invest in commercial property, and this can be achieved in a couple of different ways. You might buy a property that you can rent out to other businesses, which could lead to passive income once it’s been paid off, or you might invest in a property as part of a scheme with other investors. This is a lower risk option, but the returns are also smaller, so your business model will determine if this is a good option.
This is a very different proposition than residential property investment, which is more commonly seen as people buy houses and rent them out for others to live in. There are different obligations for commercial property investment, such as higher costs, and other taxes to consider, so it’s not a decision to be taken lightly.
Is Commercial Property A Good Investment?
Everyone considering investing in commercial property does so because of the money they can earn, and a good investment will be a low risk, high profit building. This includes any and all costs associated, and the length of time of the investment you make. With the right commercial property, the investment can be excellent.
There are risks with commercial property investment that you should know about, too. The return might not be what you expect, or unexpected costs could make it a less attractive proposition. You should be aware of these from the start to avoid any unpleasant surprises.
There’s a lot to consider when it comes to commercial property investment, but we go into even more detail on what it is and why you should consider it on our blog.
How To Identify A Good Commercial Property Investment Opportunity
Knowing what makes a good commercial property investment opportunity is part of the challenge to receiving a good return on investment. This will depend on the type of property, and whether you’re buying it outright or acting as part of a group or portfolio.
Larger properties will cost more to buy or invest in, and their intended uses will determine how quickly you’ll see a return on that payment. Retail or hospitality properties need to be in the right location, while offices need to be able to attract long-term tenants to reduce the risk. New properties, or those being built, can be an appealing option but there needs to be confidence and research in the area to justify that decision.
Ultimately, what makes a good commercial property investment opportunity will depend on what you want to achieve short and long term.
Find out more about what types of commercial property make the best investments on our blog.
How Can You Get Started With Property Investment?
Once you decide to invest in commercial property, the first thing you should do is learn as much about it as possible. You can carry out research online, but it’s always worth talking to experts so you get a full picture of what’s involved.
With that knowledge, you can look for opportunities and portfolios that suit your level of risk, reward and investment. There are specialists out there that can make it easier to get involved, but over time you’ll find yourself handling more of what’s involved to make sure you receive as much benefit as possible.
Know What You Want To Achieve With A New Commercial Property
Commercial properties are the heart of many businesses. There are many ways to use them or profit from them but if you don’t have a clear strategy or plan from the beginning, you’ll make it harder to see any returns on your investment.
Understand your business plan and what the business will be used for. This will help you make decisions to maximise growth and revenue, whether that’s selling products, services, or experiences.
Even property investors need to know what they want to achieve from an investment. What risks are you willing to take compared to the returns you want? Without an answer, you won’t be able to narrow down the list of options and will potentially pick the wrong investment opportunity.
Finding The Right Commercial Property For Your Business
Whatever you need from your commercial property, we want you to make the right choice. From searching and finding the right opportunity to negotiating the right contract terms, or finding a commercial property to buy for the right price, the right expert will make every step much simpler to complete.
Local knowledge plays a huge part in getting the best deal. Knowing the area you want to be in, what’s happening in it, and any plans for the future, can all change what happens to your business. At Williams Sillitoe, we put our knowledge to use for you so you can be sure of getting the best deals and outcomes.
To find out more about our services and available properties, get in touch with a member of our team today.
