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Commercial Investment

Real Estate Income Trusts (REITs) were permitted in the UK market from January 1, 2007. Since then several major trusts have been successfully established in the market. These trusts are established primarily with the aim of making commercial investments in real estate. The establishment of REITs has led to considerable interest from angel investors who see commercial investment in property as an attractive opportunity to achieve long-term returns. 

Various angel investment networks in the UK have also been instrumental in bringing business angels and builders of commercial properties together for mutual benefit. Commercial property investments are usually highly capital intensive, and take a long time to produce returns. That makes a good reason for the entry of angel investors in this business because they have the kind of long-term finance that is required for it. 

Difference between Commercial Investment and Residential Investment in Property

Commercial investment in real estate is substantially different from residential investment. Commercial investments are made in areas that have been designation exclusively for conducting trade, commerce and industrial activities. This may include properties such as office buildings, retail stores, shopping malls, hotels and restaurants, gas stations, public parking areas, amusement complexes, and so on. On the other hand, residential investments in real estate include apartments, flats, town houses, and council estates. 

Over the past one decade, investments in residential buy-to-let properties have escalated. Attractive prices, availability of mortgages, and affordable size of properties have maintained a high level of interest in this type of investment. Individual investors are able to go for this category of investment because of its affordable scale and size. On the other hand, commercial investment in office or retail properties has stiff entry barriers for individual investors. The size of investment in these properties is usually much higher which makes them unviable for small individual investors. Secondly, the lease term of a commercial property is generally quite long, say, ten years or more. Residential properties tend to have much shorter lease terms in comparison. These barriers deter smaller investors from entering commercial property segment. 

This creates a good opportunity for angel investors to make significant commercial investment in the office or retail real estate ventures.

Advantages of Commercial Investment in Real Estate

In a conventional sense, residential investments in real estate are supposed to give returns in terms of the increase in asset value of the property over a period of time. Whereas, in case of commercial investments in office buildings and retail stores, the return is usually estimated in terms of the potential rental income that it will fetch. Commercial investment in such rental properties provides a consistent flow of revenue over a prolonged period of time. Since the valuation of the commercial property is essentially estimated in terms of the rental return that it achieves, it makes the price of such properties much less volatile in nature as compared to residential properties. 

It has been observed that over long periods of time, such as 2 or 3 decades, commercial investment in rental properties has proved to be much more beneficial as compared to investments in bank deposits or bonds. This investment also allows the investor to diversify his portfolio and spread his risk. Another key advantage is that commercial real estate investments provide the investor with a physical asset where the investment is actually visible, and tends to achieve a superior emotional value for the investor. One note of caution while investing in commercial property can be that the investor needs to manage the property more closely, and there are usually expensive government charges and taxes attached to such properties. However, for large investors the returns of commercial investment in properties still make it a lucrative option. 

These inherent benefits of commercial property attract the interest of business angels in many cases.

Commercial Real Estate Investment Market in UK

In UK, an estimated 80 percent of the commercial investment in real estate is made in office buildings, retail centres, and industrial complexes. Nearly 50 percent of these commercial properties are owned and self-occupied by business houses, governmental agencies, and non profit organizations. The other 50 percent of the segment is the commercial investment property that is rented out to tenants by the owners. 

About 20 percent of the commercial investment in real estate in the UK is made in amusement complexes, hotels, restaurants, bars, student and youth accommodations, and healthcare properties. Much of the commercial investments in property are located in London and the Southeast. Retail stores, however, are more uniformly spread all over the country, in contrast to industrial and office buildings. 

Complexity of Commercial Investment in Property

Investments in commercial real estate are more complicated than other asset classes. Since the investments are large, some angel investors may join hands together to make joint investments in a single project. Sometimes the investors may also choose to put their money in limited partnerships that are good for leveraging, but may be more illiquid in character. 

It is advisable that only experienced investors may enter into such partnerships because they understand the complexities. The risks of commercial investment must be carefully and professionally assessed before going ahead with investments in such properties. It may be worthwhile to hire independent agencies to evaluate such projects in order to receive a realistic and unbiased opinion on the investment.