This is a tricky question which all potential commercial property buyers face. As everyone is aware, the global economic crisis over the past few years has had a major impact on all types of property prices. Values have plummeted and many people have been forced to sell their homes and commercial property at significantly lower prices. Many thousands of people are finding themselves in negative equity, especially if they bought at the height of the market.
Subsequently, buying commercial property in the current climate is potentially a good idea as prices are much lower than in pre-recession times. For the progressive investor, buying now can be the best opportunity to afford commercial premises in a prime location. Do a lot of research and visit some of the available commercial premises to determine how busy and successful the area where the property is located appears to be. For example, buying on an industrial estate which has many vacant units will not easily attract suitable tenants – however cheap the price seems to be. The buyer must be aware that the quantity of potential tenants will be less than in more prosperous times. It has been, and still is, a difficult time for existing and new businesses, and many have become insolvent and collapsed. However, the government is offering to help new businesses with a number of cash incentives in the form of grants, loans and other funding programmes. Many of these businesses will need commercial office or production space into the future. Initially, it is sensible to pitch the rent at a competitive level to attract tenants. After all, it is better to have some rent coming in than sitting on an empty unit.
Commercial properties are liable for business rates which are calculated on the rateable value which the Valuation Office (part of Her Majesty’s Revenue and Customs) assigns. However, there are some relief schemes which should be checked out before purchase. These include small business rate relief, rural rate relief, deferral scheme, charitable and enterprise zone relief. Many of these schemes vary by geographical location.
Go to https://www.gov.uk/ to find the latest information.
In general, shops and offices are exempt from business rates for three months after the property becomes vacant, and industrial properties have a six month exemption. Properties with a rateable value of under £2,600 do not have to pay business rates until they are occupied, but properties over this figure will be liable for full payment after three months. These new regulations came into force in April 2011. The Chancellor, George Osborne has instructed a working party to consider vacant business rates charges and exemptions, taking into account the impact on the commercial property market.
Commercial property can provide good value and returns compared to other investments. However, unemployment is still high and it is a fact that there still many vacant units due to the current lack of demand. Potential buyers should exercise caution and not have high expectations in the short term. Basically, buying commercial properties should be considered over the long term. There will rarely be any short term profitability. Commercial properties are cheaper to buy now, but the lack of tenants can balance out the advantages initially. Be prepared to accept lower rent to keep the property ticking over, and when times get better, the rent can be increased and the owner will begin to prosper.