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What Is Commercial Property & How To Buy It

How to buy commercial property

Commercial property is any type of property that is used for business purposes. Commercial properties can include industrial buildings, retail space, office space and land.

To buy commercial property, purchasers should: :

  • Know the budget available for purchase (also consider the ongoing running costs like utilities and business rate).
  • Understand the businesses’ requirements in terms of location, space, and amenities.
  • Integrate both the budget and requirement to find a suitable property.
  • Find a commercial property agent that understands the requirement and the local market.
  • Once a suitable property has been found, arrange viewings.
  • Negotiate terms. This includes the purchase price, deposit, lease breaks etc..
  • Arrange financing.
  • Work with a solicitor to complete the sale.

Getting the right location for your business premises is crucial. Whether you need a warehouse or a shop presence, the first step is to fully understand your requirements and your budget. From there, the process will take care of itself. Read on for further insight into what you can expect. 

What Is Commercial Property?

Commercial property is any property or land that is mainly used for business purposes. This includes business warehouses, retail space, industrial sites and office buildings.

Location and size of commercial property may vary greatly, and the type of business it accommodates will also influence its value greatly. For example, a large office at a premium location will worth more than a small office at a less admirable location

Know Your Requirements

For a business, the first step in acquiring a property is to understand the needs and requirements. These requirements include things that the property must satisfy, such as budget, amenities, location, accessibility, and size of the property.

These requirements act as your shopping list and can be used to customise the search for an ideal property and can be shared with the right commercial agent if a professional acquisition service is being used to acquire the commercial property.

Below are 6 details to consider while crafting requirements to get the property acquisition started off on the right foot.

Location 

The first detail to be considered when acquiring a commercial property or any other property, is location. The ideal location for a business property, depends on the type of business and the services being offered by the business.

For instance, a retail store should be well located in areas with high foot traffic and great visibility or in a retail park with enough space to facilitate parkings. Although, an office property can be situated at the edge of town with excellent accessibility for commuters.

In addition to the neighbourhood, proximity of utilities and amenities to be assessed by both clients and staff should also be considered. Such as public transportation and restaurants.

Property Use 

Commercial properties come in all sizes and shapes according to their facilities. Fom small retail buildings, pubs and nightclubs, to large industrial properties.

When in search of the perfect property space, the end use of property needs to be considered. In the UK, every property has been assigned to a Use Class category that determines what activities can be carried out on the premises by its lawful occupants.

Although businesses can apply for permission to alter the use class, it can become a stressful and time consuming process. Therefore a standard process should be set in place for checking whether the business needs to obtain permission or apply for approval for the premises intended use and chances of acquiring it.

Visit the planning portal for a full list of all property use classes 

B2 General industrial 

Used for industrial processes other than the one within class E(g) (previously class B1) (excluding chemical treatment, incineration purposes, landfill or hazardous waste)

B8 Storage or distribution 

This class includes open-air storage.

Class E – Commercial, Business and Service

Class E now covers uses previously defined in the revoked classes in 11 parts, including A1/2/3, B1, D1(a-b) and ‘indoor sport’ from D2(e):

  • E(a) Display or retail sale of goods, other than hot food
  • E(b) Sale of food and drink for consumption (mostly) on the premises
  • E(c) Provision of:
    • E(c)(i) Financial services,
    • E(c)(ii) Professional services (other than health or medical services), or
    • E(c)(iii) Other appropriate services in a commercial, business or service locality
  • E(d) Indoor sport, recreation or fitness (not involving motorised vehicles or firearms or use as a swimming pool or skating rink,)
  • E(e) Provision of medical or health services (except the use of premises attached to the residence of the consultant or practitioner)
  • E(f) Creche, day nursery or day centre (not including a residential use)
  • E(g) Uses which can be carried out in a residential area without detriment to its amenity:
    • E(g)(i) Offices to carry out any operational or administrative functions,
    • E(g)(ii) Research and development of products or processes
    • E(g)(iii) Industrial processes

C1 Hotels

Used for purposes where a significant element of care and monitoring is not required. For example, hotels, boarding houses and guest houses.

C2 Residential institutions

Used as hospitals, nursing homes, boarding schools, residential colleges, residential care homes, and training facilities.

Class F

This class covers two main purposes including previously defined purposes in the revoked classes D1 such as swimming pools, outdoor sport, and skating rinks from D2(e), while the second purpose being newly defined local community uses.

Sui generis’

Sui generis’ in this context refers to a Latin term that means ‘in a class of its own’

A few purposes are specially defined and separated from classification by legislation, and therefore becomes ‘sui generis’. Some of the specifically defined purposes include fuel stations, nightclubs, theatres, casinos, pubs, betting shops, bingo halls, launderettes, taxi businesses & amusement arcades

Size & Amenities

One of the main requirements to consider is size of the property needed and this will be largely be set by the type of business being operated. For example, a retail store needs to acquire a property that is large enough to accommodate the amount and type of goods to be sold comfortably.

On the other hand, offices require a large space enough to accommodate the various facilities and equipment required to run the business effectively. They also need to be big enough for the number of staff on the books.

Purchasing a commercial property that will be used by customers and staff you will need adequate facilities for parking and comfort. The last thing a business wants is for customers to be unable to find a place to park or rest and take their business elsewhere.

 

Price

Purchase price is the major deciding factor while setting requirements for a commercial property. The price takes precedence over any other requirements as every other requirement depends on the price.

Timeframe

Timeframe is another requirement to be considered when looking to acquire a commercial property. Timeframe can impact the type of sales that satisfies requirement and frequency of such property.

A business in a hurry to move or acquire a property gets a different deal than a business ready to take enough time to find the perfect property. The time frame is also related to how long a business aims to stay within that area. For investment purposes, it is advisable to consider the long term prospects of the location a business is considering.

Financing

Another important and necessary requirement when evaluating a commercial property is financing. A business should always ensure they can obtain the financing for the purchase. This may mean that they need to save a much larger deposit payment than that of a residential property.

Businesses also need to be prepared to prove to lenders they have the financial power to manage a commercial property day-to-day. Because commercial properties require more maintenance than residential properties, specialist insurance and regulations that need to be adhered to must be considered into the budget as well.

From energy improvements, electrical safety checks, asbestos surveys and fire safety, boiler services, and overall safety checks, companies need to understand all the related regulations that apply to them and comply with them.

A good property surveyor will be able to assist businesses with this. In larger buildings, continuous maintenance for air conditioning systems, roofing and every equipment in between can add up. Therefore, it’s important companies have a set up plan to finance the process of acquiring a property and enough to finance maintenance without shorting.

A few ways businesses finance commercial property purchase includes; commercial mortgages, small business loans, traditional bank loans, private loans, and sale of previously owned properties.

Purchasing Process For Commercial Property

After integrating your budget with the list of requirement on the ideal commercial property a business intends to acquire, businesses will need to:

  • Start their search by looking into properties that meet these requirements and are within budget. This can be done by contacting any local commercial property agent that specialises in the area of interest, and also using online property sites that list commercial properties for purchase like Rightmove.
  • Once a suitable property has been found, viewings should be arranged with the agent.
  • Negotiation should be the next step after finding the perfect property. This negotiation could include the purchase price, deposit, length of lease, etc.
  • Once negotiations are complete, and both teams are satisfied with the terms, professional inspections should be made on the property by a surveyor experienced in commercial properties.
  • Once it has been confirmed that the property is in its acclaimed condition, or renegotiations has been made in reflections of any findings the surveyor made, finances for purchasing the property comes next.
  • Finally work with your solicitor to complete the sale and acquire rights to the building.

Can Anyone Buy Commercial Property?

In theory, anyone with a large enough deposit or finances can purchase a commercial property. However, in the UK, it’s most common for commercial properties to be owned by owners or occupiers who run a business or investors who acquire the commercial space to lease it out to business tenants. Commercial buildings are also usually managed by a team of professional property managers.

As the scope and size of commercial properties vary greatly, the purchasing strength of the business will depend on its size and financial stability or cash reserve. For instance, a large company is likely to have a higher purchasing power compared to a small business. Therefore, a small business will be limited to the size and location of the commercial property it can purchase in comparison to a large company.

Furthermore, the decision on who can purchase the commercial property available will depend on the individual seller. The individual seller will need to assess the needs of their property and the purchasing strength of potential buyers to make informed decisions on the property.

Benefits Of Buying Commercial Property For Business Owners

A few of the main benefits of business owners purchasing commercial properties include:

  • Passive income. By owning the property in which the business is located, you can generate a passive income from renting out part of the building.
  • Asset appreciation. Commercial property can appreciate in value over time to provide a valuable asset to sell or borrow against in the future. Just like other properties or assets in the market, commercial property values can drop over time too.
  • Custom-fit out. Owning the property comes with the right to customise the property how you see fit.
  • Tax advantages. Purchasing commercial properties gives access to tax reductions advantages. Commercial property owners get to subtract expenses such as mortgage interest or depreciation and a few other expenses from their tax.

Drawbacks Of Buying Commercial Property For Business Owners

Some of the main drawbacks of business owners purchasing commercial premises include:

  • Large upfront costs. Acquiring a commercial property requires a large amount of money as a deposit, which can be difficult to provide for small businesses.
  • Maintenance costs. As a commercial property owner, you will be responsible for maintaining and improving the property, which might require large sums of money. This can be expensive and cause unplanned setbacks.
  • void periods. If you have to halt operations on the commercial premises due to any unprecedented problems, it might lead to void periods where no earnings are made on the property.

Comparing the pros and cons of purchasing a commercial property is essential, and requesting the assistance of a financial advisor is important before making any decision.

How Much Does It Cost To Buy A Commercial Property?

The cost of acquiring a commercial property will come down to the size and location of the intended property as well as the state of the market. In general, you will need to pay between 10% to 20% of the asking price as a deposit, with the remaining balance paid over an agreed period of time through a commercial mortgage or other sources.

Professional fees, stamp duty and other associated costs will also need to be factored in, which can significantly increase the amount of money to be paid. It’s advisable and important to request assistance from a financial advisor to get an accurate estimate of the total cost of acquiring a commercial property before moving forward.

Summary

To recap, a commercial property is any type of property that is mainly or solely used for business purposes. This can include industrial buildings, retail space, office space and land.

For an individual or a business to acquire a commercial property, they must have the financial power to do so. They must also integrate their budget and requirements to limit their search to the ideal property.

Hiring a professional commercial property agent will help to ensure the most efficient transaction from shortlisting, viewing, negotiations and legal contracts.

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