13 May Five tips for investing in commercial retail property in uncertain economic times
Investing in commercial retail property is all about timing. With so much uncertainty over when Covid-19 restrictions will be lifted, you may feel now isn’t the time to embark on a retail venture.
However, it is a good time to do your research, look at available stock on the market and consider what type of business would make a strong investment for the future.
Here are five things you need to consider.
With any property investment, location is key. But with retail, it’s fundamental to the success of the venture. You need an area where your business will be highly visible.
Even in times of crisis, footfall is highest in town centres, high streets, retail parks and shopping centres. A shop needs plenty of passing trade. It also helps to have good transport links and parking nearby. Consider where your customers will come from and is your premises in easy reach for staff and suppliers.
2) Business type
The high street is currently undergoing a huge transformation. While some well-known retail names are going to disappear forever, other shops are thriving.
You’ll need to consider the type of business that’s going to be in demand both now and in the future. Click-and-collect retailing has seen a massive increase and that trend is set to continue, even after shopping restrictions have been lifted.
Business type is relevant whether you plan to manage a shop yourself or let it to tenants because planning permission will need to be taken into account. The type of business that can take place in commercial property is defined by the Town and Country Planning (Uses Classes) Order 1987.
Retail property falls in the A1 use class that covers shops, hairdressers, showrooms, dry cleaners sandwich shops, and internet cafes. You can find a list of planning use classes on the Planning Portal.
Once you’ve decided on your business type, check what other shops are located close to the premises.
Ideally, you don’t want too many competitors. However, you do want neighbouring shops that will attract people to the location.
4) Total cost of investment
As well as the purchase price of the property, there are other expenses you’ll need to take into consideration. Stamp Duty Land Tax (Stamp Duty) applies if you buy premises worth more than £150,000 in England and Northern Ireland. In Scotland, Stamp Duty has been replaced by Land and Buildings Transaction Tax, and in Wales by Land Transaction Tax.
Business rates will apply, though landlords that let their property usually pass the cost of business rates onto their tenants. There is also insurance, local authority charges, repairs and maintenance, running costs and service charges, and potentially VAT. Again, if you’re a landlord, some of these will pass to the tenant.
You’ll also need to decorate and fit out the shop to create the type of environment that will appeal to your customers or tenants.
5) Sourcing finance
Banks and building societies provide commercial mortgages for the purchase of retail properties. You could also take advice from a commercial mortgage broker.
Lenders will want to know you can keep up with repayments and are likely to want to see a business plan and perhaps a commercial mortgage repayment plan as well as accounts and bank statements.
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