Commercial property is a professional market with many advantages. In addition to profitability, it offers a real long-term source of passive income for landlords, since commercial and professional leases are long-term contracts. But how do you access this market? What types of premises are available? What are the constraints and advantages?
HOW DO YOU ACCESS THE COMMERCIAL PROPERTY MARKET?
The commercial property market (offices, shops, warehouses, business premises) is represented by private and professional lessors. There are several ways of accessing this private market: estate agencies specialising in commercial property, city centre managers and prospecting for owners directly. As with any property investment, location is everything, and good opportunities don't need a ‘for sale’ or ‘to let’ sign to find takers. So the quality of an address will make it easy to market over the long term, while ensuring a steady return for the owner.
To access these prime opportunities, it's a good idea to consult specialist commercial property websites such as unemplacement.com, which will allow you to send your search for commercial premises or land to all the commercial property professionals working in the towns you're targeting. As far as the town hall is concerned, the town centre manager or economic development officer is responsible for boosting a town's economic centres. Their role is to ensure that there are no vacant commercial premises, but above all to guarantee the diversity of commercial activities in their area. For this reason, it maintains regular contact with existing landlords in order to constantly put forward applications from serious tenants. In agreement with the mayor, it can also refuse to accept any new retail premises that it considers to be unbalancing the commercial fabric of its area (e.g. too many fast-food restaurants to the detriment of ready-to-wear shops). Finally, the advantage of this contact person at the town hall is that he or she is familiar with new property developments several years before they come on the market. This is a very interesting entry point for investors looking to buy retail premises at the foot of buildings, as this type of asset is considered a constraint by residential property developers due to its technical nature.
The final, more accessible but more restrictive method is to canvass property owners directly. It is now possible to contact sellers by displaying their contact details on billboards or advertisements on general or specialised websites for private individuals. However, it's a risky business, and not very profitable. It's risky because there is little credibility between private individuals, and this lack of objectivity, provided by a trusted third party, won't protect you from hidden defects on the part of unscrupulous sellers. It's also unprofitable, because good locations are often reserved for property professionals, who are able to sell or let off-market premises in less than 48 hours thanks to their listings of qualified buyers and tenants. As a result, you will never have access to this type of property and will spend your time making do with second-hand locations.
WHAT TYPES OF PREMISES? THEIR CONSTRAINTS AND ADVANTAGES?
There are different types of premises on the commercial property market. Each has its own advantages and disadvantages:
Warehouses are a good investment, with a rate of return of between 6% and 10%. The main advantage of this type of premises is the initial investment, which is lower than for premises located in a town centre. Warehouses are generally made of sheet metal, are located in industrial areas and require little maintenance. They are generally rented to B-to-B companies that need a large storage area and parking for themselves and their customers. For this reason, they need to be easily accessible and have a car park so that goods and customers can pass through easily. These warehouses are often located in tax-free zones, which is a boon for tenant companies, who can avoid a number of tax charges.
A medical practice is, as its name suggests, a property complex housing medical professionals. As a result, professional leases will be required to accommodate these practitioners. Generally located in towns and cities, these practices will need to be positioned in the heart of densely populated areas in order to attract a local clientele that is easy to retain. As a result, the purchase price of this type of acquisition is high, and you'll also need to add some fitting-out work. This basic investment is substantial, but it will be well worth it, as the premises will be home to long-term professions. It is also advisable to set up a medical analysis laboratory and pharmacy on the ground floor of these medical centres, to create synergy with the doctors. These combined advantages will encourage doctors not to relocate, as they risk losing this quality of service and, consequently, their clientele.
Offices are an investment with many advantages, not least an estimated return of 3%, which is higher than for residential property. In the same way as a medical practice, a professional lease can be taken out rather than a commercial lease. With a minimum term of 6 years, this type of contract will provide the owner with long-term stability. Office space is also very popular with condominium owners, as it produces no nuisance. Location is also important for this type of premises, to ensure a high quality of work for the employees of tenant companies. Office space therefore needs to be easy to access, thanks to its proximity to road networks and public transport, as well as to food shops for lunch breaks. Finally, this type of premises is easy to acquire, as offices are usually located on the upper floor. As a result, there are more opportunities in this market than for ground-floor commercial premises.
Commercial premises are the most common type of commercial property. Marketing these properties is a godsend for specialist agencies, because as well as a location, they can also sell business assets, which means higher commission. As a result, it will not be uncommon to find offers of business assets accompanied by their premises for sale. It's worth noting that buying premises that are not occupied by any businesses is still more attractive to investors, as it will be easy to apply a standard 7% rate of return. Of course, this rate can be exponential depending on the quality of the address. The advantages of this type of location are the application of a commercial lease that gives the lessor security over a 9-year period, and the tenant's obligation to maintain the premises. It is customary for the maintenance, management and charges relating to the commercial premises to be passed on to the tenant. For this type of investment, you will also need to pay attention to locations where visibility to customers is paramount. Lastly, the quality of the tenant will be crucial, as it is extremely difficult to evict a retailer-operator without paying him an eviction indemnity in compensation for his commercial property (goodwill + commercial lease).
IS INVESTING IN COMMERCIAL PROPERTY RIGHT FOR ME?
So, if you're looking for an alternative to traditional property, investing in commercial property is a market that requires more in-depth work, because of its diversity of assets, its niche status and its confidentiality. Nevertheless, if it is well executed, with the help of professionals specialising in this market, your investment will be more profitable in the long term. However, the entry fees for investing in offices, retail premises, warehouses and logistics platforms are very high, and buying premises is often reserved for professional and/or institutional investors, except for small areas in town centres. If you are an individual investor, we therefore recommend that you speak to a professional who can guide you towards investing in small premises, craft premises or storage space, for example.
