Newspaper article The Journal (Newcastle, England)

Tick off All the Boxes; Commercial Property Gavin Dawson of Naylors Chartered Surveyors Talks through Some of the Issues to Be Considered When Buying Commercial Property for Investment

Newspaper article The Journal (Newcastle, England)

Tick off All the Boxes; Commercial Property Gavin Dawson of Naylors Chartered Surveyors Talks through Some of the Issues to Be Considered When Buying Commercial Property for Investment

Article excerpt

Byline: Gavin Dawson

AT a time of continued low bank rates and worries about underperforming pension funds, more and more private investors are turning to commercial property as a way of expanding their financial portfolio and generating income.

However, while there are good returns to be made, there are considerations to be made to ensure the investment being considered is the right one for you. Location

A property's ability to gain and maintain its income- producing capacity is fundamentally linked to its location and appeal to occupiers. Traditionally, industrial occupiers have been located on established business sites near their raw materials and skilled workforce, road networks and suppliers or clients.

Retailers require pedestrians and, while traditionally they have been associated with the high street, this is now less relevant to retailers who can operate from edge of and out of town locations. Office occupiers conglomerate near to labour force, competitors and typically near to or within the central business district, although in recent years, there has been a move to more out of town locations.

Here more practical and larger floors can be provided with higher car parking ratios.

Lease

The terms upon which a property is let are set out within the lease and are essential to ensure that the income is secure. The lease will set out rents, length of term, basis on how the rent is reviewed. Is it based on an agreed indexation such as Retail Price Index or comparing like-for-like properties nearby and making suitable allowance?

It will also set out who is responsible for repairing and insuring the property and whether the permitted use by the landlord is in accordance with planning law - the more restrictive the user clause, the less attractive the premises will be.

Most leases are within the provisions of the Landlord and Tenant Act 1954 (Part 2) which gives rights to both landlords and tenants in the case of lease renewal. Covenant The financial standing of the tenant is very important when considering an investment acquisition and is usually reflected in the asking price. New and small businesses sometimes have no financial information available therefore, to minimise risk, it is essential to try and understand as much as possible about their business plan and ensure they have included cash flow projections not only for the rent, but service charge, repairs, business rates and utilities as well. …

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