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Why private wealth should invest in commercial property

By LLM Reporters on 4th March 2021

Navigating the complexities of commercial property in today’s financial world

The success of investors’ wealth is driven by intelligent decision making. While funds, shares and other financial investments may prove to be lucrative, the commercial market shouldn’t be underestimated. The UK government’s recent announcement of a post-Brexit trade deal with the European Union and implementing a Covid-19 vaccination programme should make 2021 the ‘turn-around’ year when individuals and businesses have more foresight and confidence to make bolder decisions following the coronavirus pandemic. There are a few reasons that it has become increasingly popular for private wealth to invest in commercial real estate in their investment portfolio.

Broader property types

Historically, UHNWIs concentrated their investment on Class A office, retail and apartment buildings. These assets were viewed as safer for the long term – particularly in large cities. Class A office buildings are easier for investors to understand than less-popular property types in secondary and tertiary markets. Access to market data is more in-depth than ever before, which means that family offices have better analytical capabilities to make UHNWIs comfortable with a wider range of property investments.

More comprehensive geographic focus

Historically, private investors preferred to keep their real estate investments close to home, where they could keep a close eye on the property markets, analysing small nuances. However, today, family offices have global access to local-market information supported by innovative technology, making them more comfortable than ever making cross-border investments.

Savvy investors are looking elsewhere in commercial property to find hidden gems

How can commercial property investments work for private wealth?

“While the occupancy dip in the office market suspended activity in 2020, we have seen a spike in industrial property transactions, due to demand for logistical hubs and distribution centres born from digital transformation,” says Paul Welch, CEO of largemortgageloans.com.

He adds: “largemortgageloans.com commercial investors are not anchored to offices or residential developments. Rather than remaining stagnant, we have invested in lesser-known commercial property while the office market remains ‘on pause’. The office market will return, only it will be remodelled. We expect to see a growing demand for safe and agile workspaces. In addition to this, there is a growing popularity for the decarbonisation of buildings.”

The UK commercial property market is fertile ground for overseas investors, where prime commercial stock in major regional cities are in high demand and short supply. Investors from the Middle East, Europe and Latin America have the most appetite for investing overseas, with the UK’s property market set to be the property honey pot. UHNWI’s commercial portfolios profit from rents and property value appreciation.

Private wealth typically ensures portfolios are well diversified across various asset classes, geographies, styles and size; spreading their risk exposure. For many, commercial property is an investment with an excellent solid yield, receiving a strong return on their capital. Yields for commercial property are typically much higher than residential property. They typically range anywhere between 5 per cent to 7.5 per cent.

Meanwhile, residential property throughout the UK yields 3.5 per cent on average, although the appreciation may vary depending on the location. In addition to this, rental income is a good way of ensuring that a HNWI receives a continual revenue stream on their commercial investment. The rental income accrued over a long period could cover the property purchase. Commercial mortgages provide a certain amount of certainty. “Regular and predictable costs can make stabilising your cash flow easy,” says Mr Welch.

There has been a spike in industrial property transactions due to demand for logistical hubs and distribution centres born from digital transformation

Securing the best commercial mortgage

Whether you are a domestic or foreign investor, the silver lining is that the interest on your commercial assets can be tax-deductible. There a few key steps that largemortgageloans.com recommend that you should get right to ensure you start on the right foot by securing the best commercial mortgage possible:

  • Appoint a trusted mortgage advisor who has the right contacts to get you the best mortgage deal possible.
  • The commercial mortgage terms should be assessed with a holistic approach. While a low deposit or a low-interest rate may sound attractive, work out the financial impact longer term and read through the terms and conditions carefully.
  • The way that mortgage deals are structured is key to ensuring that you receive preferential terms together with any particular underlying covenant.

How can private wealth structure a commercial mortgage?

You can structure commercial mortgages in many different ways, onshore or offshore, through a company name or trust, it is a self invested personal pension. Companies like largemortgageloans.com work across multiple jurisdictions, which means that private wealth can invest in property outside their local area. It is not uncommon for UHNWIs to have their commercial mortgage rejected. UHNWIs, with a net worth of tens of millions can struggle to find a lender willing to provide them with a commercial mortgage. This issue arises because traditional mortgages are risk-averse, so there is a narrow criteria that high street lenders use to assess an applicant’s eligibility for a mortgage.

UHNWI’s finances tend to have a more sophisticated setup, which often means they fall short when in a ‘tick box criteria’. In this instance you would need to appoint a specialist like largemortgageloans.com who are well versed at positioning HNWI’s profiles in order to overcome any hurdles. largemortgageloans.com works with niche banks which are more willing to see past a standardised criteria.

“I’m excited to welcome more clients that see the commercial market without ‘office blinkers’. Savvy investors are looking elsewhere in commercial property to find hidden gems. The face of commercial property as we know it is changing, and property developers can capitalise on ‘deregulating’ measures,” explains Mr Welch.

“If you want to find out if you are eligible for a commercial mortgage, get in touch with one of largemortgageloans.com. We have significant experience in arranging commercial mortgages, and we have an in-depth understanding of how to present individual cases to lenders, thereby securing the best possible mortgage terms for you.”