If you're looking for commercial property for sale, our practical guide will help you every step of the way.
The British are known for their love of owning property. Many people aspire to own a house or flat. After all, the bulk of the UK’s buildings are homes.
But have you considered buying commercial property? It now accounts for around an eighth of the value of all buildings across the UK and totals £683bn, according to the British Property Federation (BPF).
The majority of the commercial property sector is made up of:
- Retail: shops, supermarkets, shopping centres and out-of-town retail warehouses
- Industrial: warehouses and factories
- Leisure: restaurants, pubs, cinemas, gyms and hotels
There are also more alternative commercial property types, such as petrol stations and schools.
If you're looking to invest in commercial property, then follow Zoopla's comprehensive buying guide. You will find that purchasing a commercial property shares some similarities with buying a house or flat.
Find a property
If you can, choose a good time to buy a commercial property. You don’t ideally want to purchase a building at the top of the market when prices are high. It is advisable to look at the trends in the local and national commercial property market, such as:
- Value of commercial property
- Supply of commercial property
- Availability of commercial mortgages
- Appetite of competing investors
- Tenant demand and rental values, if you plan to let the commercial property
You can read Zoopla’s news site for the latest, up-to-date intelligence on the commercial property market.
A commercial estate agent will be able to give you advice too.
The location and building type are also key factors when it comes to deciding which commercial property for sale you want to snap up. The major considerations to take into account include:
- Type of property: retail, offices, leisure or industrial
- Type of investment: freehold or leasehold
You should think about how the commercial property will suit business needs, be it your's or a tenant’s:
- Transport: air, sea, rail and road links
- Parking facilities and restrictions
- Delivery facilities and restrictions
- Congestion charges
- Local amenities for staff
- Proximity to pool of potential employees, including colleges and universities
- Closeness to other businesses, suppliers or clients
- Facilities, equipment, furniture and other services
- Space configuration
- Impression it will give to potential employees and clients
You can search on Zoopla for commercial properties for sale.
Commercial property is divided into use classes under the Town and Country Planning (Uses Classes) Order 1987. The legislation determines how each commercial property is occupied. You should make sure that any business carried out in the commercial property you plan to buy is in line with its planning use.
The following list gives an indication of the use classes:
- A1 shops
- A2 financial and professional services
- A3 restaurants and cafés
- A4 drinking establishments
- A5 takeaways
- B1 business
- B2 industrial
- B8 storage or distribution
- C1 hotels
- C2 residential institutions
- C2A secure residential institution
- C3 homes
- C4 houses in multiple occupation
- D1 non-residential institutions
- D2 assembly and leisure
If you aim to redevelop the building or alter its intended use, you may require planning permission.
However, there are exceptions to the rule where legislation allows some changes between use without full consent. For example, the Government introduced new temporary permitted developments rights in 2013 to allow offices to be converted into homes without the need for full planning permission.
It is important that you always seek advice from the local council and a commercial estate agent on the feasibility.
Work out the costs of buying a commercial property
Generally, a deposit is required when contracts are exchanged to buy a commercial property. The remainder is then paid when the deal completes.
However, there are several other costs to take into account when it comes to buying commercial property. These can include:
- Advice: you will need assistance from professionals, including a commercial estate agent, lender and solicitor
- Stamp Duty Land Tax: you must pay the tax if you buy a commercial property valued at more than £150,000, the current threshold in England, Wales and Northern Ireland
- Stamp Duty in Scotland has now been replaced with the Land and Buildings Transaction Tax
- VAT: some commercial properties are subject to VAT
- Fees associated with arranging a commercial mortgage
- Decorating and refurbishing the commercial property
- Buying and fitting out the space with furniture and equipment
- Hiring a firm to help transport furniture and equipment
- Setting up facilities, including establishing IT
And the bills don’t end there. You should consider the ongoing costs of maintaining commercial property too. If you plan to let out the commercial property, you will likely want to share some of these bills with your tenant.
The costs of owning a commercial property might include:
- Repairs and maintenance
- Services, including security and cleaning
- Local authority charges, including waste collection
- Retaining a commercial property estate agent to manage the building
- Commercial mortgage repayments, if applicable
Business rates are often a major consideration for owners of commercial property. They are a tax on non-domestic buildings. Business rates are worked out by multiplying the rateable value of the commercial property - set by the Valuation Office Agency (VOA) – by the Uniform Business Rate (UBR). The VOA’s valuations are revised every five years. The most recent revaluation was carried out in April 2010 based on data from 2008. The next revaluation is scheduled for 2017.
The local council will provide you with a business rates bill each year. There are exemptions available, such as small business relief and rural rate relief.
There are widespread calls for reform of business rates. Chancellor George Osborne pledged in his Autumn Statement in December 2014 to undertake a full review on the future structure of business rates in time for the Budget in 2016.
Another factor to consider is energy costs. The vendor will give you an Energy Performance Certificate (EPC). It will provide guidance on how energy efficient the commercial property for sale is – and importantly, what your likely energy bills will be. The EPC, valid for 10 years, will show the energy rating for the building from 'A' (most efficient) to 'G' (least efficient). For example, air con systems and boilers can have a significant impact on your energy costs.
It is worth exploring whether you can claim capital allowances towards some business costs too.
Secure a business loan to do the deal
You may require a loan to help boost your buying position. A commercial mortgage is widely considered one of the most common forms of finance used to buy a commercial property.
Lending on commercial property grew during the years leading up to the credit crisis. And around 44 per cent of the value of commercial property across the UK is backed by debt, according to the most recent survey by De Montfort University.
There is now a range of lending sources. You should look across the market to compare mortgages and secure the best deal.
Lenders require a significant amount of information before agreeing a commercial mortgage. They will typically ask you for a range of details, which might include a business plan, commercial mortgage repayment proposal and business bank statements and accounts.
Commercial mortgages typically range from three to 25 years.
You may want to seek professional help from a commercial mortgage broker.
Put in an offer
When you have found a commercial property you want to buy, you will need to make a written offer – usually to the vendor’s commercial estate agent.
If the vendor refuses your offer, it is worth trying to negotiate to reach a mutually acceptable level. Remember that the seller has a number of factors to consider, including your price and the speed at which you can complete the deal.
When your offer is accepted, politely request that the commercial property is taken off the market to prevent other interested parties from closing in on the deal.
You should carry out a local authority search to unearth anything that might impact the commercial property and the wider area. The search may include details of relevant planning applications, building regulations, transport development and other issues, such as contaminated land. After all, you don’t want to find a nasty surprise lurking further down the line that will impact the value of your commercial property.
Exchange contracts and complete on commercial property
You will now need the legal expertise of a solicitor. A document detailing the main points of the sale agreement will be drafted up once your offer has been lodged and accepted. It is called the heads of terms. The document will include the type of agreement struck, how the deal will be financed and proposed timescales.
Your commercial estate agent and solicitor will then start to negotiate the final details of your contract with the seller.
You can request that an exclusivity agreement – otherwise known as a lock-out agreement - be put in place. It will allow you a specified timescale to carry out the due diligence knowing that the seller will not negotiate with another party.
A survey of the commercial property will typically be carried out to make sure it is structurally sound and there are no major flaws that have not been accounted for.
You may also want to use this time to secure planning consents from the local council if you want to redevelop the commercial property.
Contracts will be exchanged when:
- both parties are satisfied with the contract
- you are happy with the state of the commercial property
- the finance to do the deal has been raised
This is when buying the commercial property becomes recognised in the eyes of the law.
Other boxes to be ticked, which your solicitor can provide advice on, tend to include:
- setting up insurance
- paying Stamp Duty Land Tax
- registering your ownership of the commercial property with Land Registry
- verifying whether you need to register your commercial property for health and safety
The deal will complete when the formal documents are signed, dated and delivered. Your solicitor will hand over the remainder of the purchase price to the seller’s solicitor, and you will receive the keys to your new commercial property.