When people think of real estate investment, there is a tendency for them to think only of residential properties. This is especially the case for small investors who want just one or two properties to help them to build up a retirement fund.
They are familiar with the residential real estate market, so feel comfortable investing in it. There are still good returns to be had in this market, but you really should not dismiss the idea of investing in commercial property too. Doing so will diversify your portfolio and give you the chance to secure a good rate of return on your investment.
Prices are rising fast
The financial crisis that began in 2008 had a massive impact on the price of warehouses, retail units and offices. Prices plummeted, but they are now rising again and at quite a fast rate.
Now is the time to enter the market, and you are going to have to move fast if you do not want to miss the boat. For this sector, returns on investment reached double figures in 2014. The figures for 2015 have not been fully collated yet, but it looks like returns of around 15% were the norm.
This level of return will not continue forever. However, provided the UK‘s economy grows again in the next few years the value of commercial real estate should carry on rising.
Where to invest
Currently, commercial property in the big cities represents the best value for money. If you see an industrial warehouse to let in London, the chances are the rent will be high, and it will not take long to find a client.
Recovery always takes place in the big cities first. That is where the majority of businesses want to be based. Therefore, during a recovery, that type of property is snapped up first. Once the price of rent in these cities reaches the point where most company’s turnovers will not bear the cost, demand for commercial property in smaller cities will start to grow.
How to invest
Large investors are already snapping up the best deals. They are investing tens of millions into iconic commercial real estate. For example, in 2015, Norway’s sovereign wealth fund bought a 150-year lease for 25% of Regent Street, which is London’s premium shopping street.
However, there is still plenty of room in this market for the smaller investor. You just need to know where to get started.
Join an investment fund
Perhaps the easiest way to do it is to join an investment fund that specializes in investing in commercial property. Some of these allow investors to start with as little as £50,000 ($71,000).
Usually, those funds are invested in a portfolio of properties along with a similar amount from several other people. However, you do need to do your research carefully. It is important to understand the fees you will be paying and how the profits will be distributed amongst the investors.
If you have not yet invested in commercial property now is definitely the time to consider doing so.
