Commercial Watch: Investors seeing commercial as B2L alternative

Jane Simpson TBMC 2016

Investors are seeing commercial and semi-commercial investment as a genuine alternative to buy-to-let.

With all the recent tax changes and the stamp duty announcements, it is possible to believe the entire property investment market has gone into meltdown with everyone desperately trying to meet a deadline of some sort.

I do not propose to provide reams of commentary on what the tax and SDLT changes may or may not mean to the buy-to-let market, as many of my contemporaries have already done so.

The truth is no-one really knows for sure what will happen and, depending on what that future ultimately looks like, government policy may of course be adjusted further in light of what is required to stabilise or control the market.

While there is undoubtedly a lot of activity in the buy-to-let market, so too is there in commercial mortgages and investment funding on commercial, semi-commercial and development properties.

Many businesses are seeing this as a great time to be buying, refinancing or capital raising their trading premises with LTVs available up to 85 per cent (or even more in some cases) and rates starting at just 1.99 per cent above base rate.

Equally – and whether or not this is driven by the buy-to-let changes outlined above remains to be seen – we have seen many landlords buying a commercial or semi-commercial property as an investment for the first time.

With funding available to 75 per cent, rates from 3 per cent above base rate and interest-only options available even on property with short commercial tenancies in place, a number of investors are seeing this as a genuine alternative to buy-to-let.

With commercial investment, whether it is a fully tenanted property or needs a bit of care and attention prior to being let, there is a solution for most scenarios provided there is a good local market for commercial lettings.

Given commercial rental yields are higher than residential in many areas, subject to course to local market conditions, many landlords are again looking at this sector as a viable alternative and deciding to diversify their portfolios.

Of course care should be taken as would be the case for anyone venturing into a new sector for the first time, and suitable advice should be taken from accountants or solicitors before making such a decision.

One common conversation we have is upon being presented with something that on the face of it appears to be, say, a 10-year commercial lease, but on further examination contains a tenant break clause after five years. That actually makes it a five-year lease and will be viewed by lenders as such.

It is clear that buying, owning and managing commercial investment stock is generally more complicated in many respects than buy-to-let but, for many, the positives (yield, lease length and therefore certainty of income) outweigh the complexities, hence why so many appear to be turning to that sector.

Jane Simpson is managing director of TBMC