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The retail sector may be struggling to pick itself up following the recession but there are still plenty of profitable non-residential options for investors. Here, Zoe Dare Hall offers advice for landlords looking to buy a commercial property. Head space: the right tenant can make innovative use of commercial premises Photo: Rex Features By Zoe Dare Hall 5:36PM BST 14 Jun 2013 In the world of commercial property , Ray Bloom is a young star. Now aged just 25, four years ago he bought the Mayfair-based commercial property company John D Wood and has since doubled turnover to more than £2m. He is now developing a UK-wide network of franchises and is branching out into commercial property in Egypt. Not everyone seeking to enter the market can emulate Bloom’s level of ambition or success. But in trying to find that first step on the commercial ladder, the trick, says Bloom, is timing. “If you buy well, fix the building and then sell smart, you will be successful. In today’s rather stagnant market, where growth is difficult to achieve, the key is to be a good manager of the property and work closely with your tenants, who are your customers.” Unlike the residential market, commercial property is mainly income-driven. There are three key sectors – offices, industrial and retail – and all are potentially available to private investors, who own around 12 per cent of UK commercial property, according to Christopher Reeve, partner at the property consultancy Bidwells. “It sounds small,” he says, “but it is a significant and growing sector when you bear in mind the average commercial property investment lot size is more than £1 million.” The timing is good. Commercial property is on the turn and individual investors need to find smaller opportunities off the radar of big commercial companies and pension funds. For example, in Bolton you can buy a shop on a busy road with a flat above (and the same residential tenant for 12 years) for £60,000-£80,000 through Miller Metcalfe. Or in Bloomsbury’s Lambs Conduit Street, commercial agents LDG are marketing a mixed-use, 508 sq ft building with an A3 licence (suiting a café or restaurant) for £300,000, with credit a projected annual rent of £30,000. Ideal, say LDG, for a new commercial investor. Shops may be an attractive entry point into commercial property but recession has hit the retail sector hard, with one in six high street shops now said to be empty – and our consumer habits are rapidly changing. “A number of investors who bought what they perceived to be good quality investments such as Woolworth and Comet have suffered,” says Richard Cleminson, head of Kinleigh Folkard & Hayward’s commercial services division. “Towns still suffering from the recession have seen landlords accepting rents at 50 per cent of what they were previously achieving – if they can relet the unit at all.” Damian Lloyd, director at the commercial property agency GVA, is more positive about retail opportunities. “In thriving towns such as Stratford-upon-Avon, where a Jessops closes, a trendy new perfume shop opens,” he says. “I see this as a catalyst of growth for some high streets – not all – but you need to think carefully what shops stand a chance of survival.” And for landlords who fear empty shop units, one possible lifeline is being offered by AppearHere.co.uk , a new online marketplace that brings together landlords looking to find tenants and individuals or retailers seeking a pop-up shop. Alternatively, smaller units such as a 500-1,500 sq ft lock-up are a good starting point for first-time commercial property investors, because of good returns and easy lets. Lloyd recommends looking at industrial premises. “They are very sought-after at the moment. As long as we’re still making things in this country, there are always going to be start-up businesses that need premises.” Office space is another area to consider – although this can be “difficult to crack” for individual investors, says Damian Lloyd. “They tend to come in large lots, which means they are expensive, or on business parks, which is a flat market at present.” Outside London, the office market is stifled by a lack of liquidity, with regional values down by 48 per cent on their peak and owners reluctant to sell at a loss. The lack of Grade A office stock in regional cities – Birmingham is one example – means some investors are spotting an opportunity in refurbishing older stock. And the internet and homeworking, it seems, haven’t killed off the need for offices. Knight Frank reports that Google’s new 800,000 sq ft campus in London and Yahoo’s ban on working from home will create a wave of IT jobs that didn’t exist 20 years ago and are mostly office-based. “We see retail as best suited in the next cycle to those prepared to actively and imaginatively manage the asset, possibly incorporating leisure and hotels,” reports Knight Frank’s latest UK Market Outlook. “In contrast, offices we see leading the upswing.” Continue reading →