Investing in commercial property
Investing in commercial property with Knight Knox
Investing in commercial property has risen in popularity amongst UK investors in recent years. Here at Knight Knox, we have compiled our expertise into the key points of consideration when investing in commercial property. While there are many positives to investing in commercial property, there are also some key points you need to know beforehand.
What is commercial property investment?
Commercial property is defined as a property that is used purely for business activities. This can include office buildings, medical centres, hotels, shops, and many more. Commercial property investment refers to the purchase (or part purchase) of a commercial property with the intention to earn a financial return from the property through rental income or capital growth.
Are commercial properties a good investment?
Commercial properties are an excellent avenue for investors looking to expand and diversify their property portfolio, offering a number of benefits to investors looking for a long-term investment. Whilst the initial purchase price for a commercial property is far greater than residential or student properties, the rental yields available for commercial properties can exceed that of residential and student. Commercial property investors can also save money on things like property taxes, building insurance and maintenance costs.
There is also a strong demand for commercial property, in particular in sectors such as offices and warehousing. Developers throughout the country are experiencing rising building costs thanks to inflation, leaving them unable to meet the increasing demand for commercial stock which, in turn, only improves the prime rental levels for high-demand commercial property types.
Different types include:
- Office buildings
- Retail shops and centres
- Industrial warehouses and factories
- Healthcare centres including hospitals and nursing homes
- Hotels/Hospitality
- Mixed-use developments
- Land
Investing in Commercial Property vs. Residential Property
How does investing in commercial property compare to investing in residential property? For starters, commercial property tends to be far more expensive than residential property thanks to factors like the size, location and desired occupants. Whilst this initial cost can be higher for commercial properties, they tend to offer far higher returns than residential properties, whilst also alleviating the stress of dealing with residential tenants.
As mentioned earlier, commercial property investment also offers a number of tax benefits. Commercial property owners can utilise what is called the ‘triple net lease’, which refers to a lease in which the tenant pays both a base rent and an additional rent that reimburses the landlord for operating costs including real property taxes, building insurance and maintenance costs.
Both property types have their benefits, and both can contribute to a profitable and diverse property portfolio.
How is commercial property taxed?
Profit made through a commercial property is taxed at the same rate as income tax or corporation tax depending on whether or not you invest in property in your own name or via a business. If you invest in your own name, income tax is as follows: 0% for income up to £12,500; 20% for income from £12,500 to £50,000: 40% for income from £50,000 to £150,000; 45% for income over £150,000. For up-to-date corporation tax rates, visit the Gov website here.
Is commercial property risky?
As with all investments, commercial property investment in the UK comes with its own risks. The initial investment is much higher for commercial property and tenant demand can occasionally fluctuate depending on the local economy, but despite this, the rewards far outweigh the risks involved when you find the right investment.
Find out more about our commercial property opportunities today!
