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Commercial Property Investments: What Advisers Should Know

4th April 2022
Chris Whitney HEAD OF SPECIALIST LENDING

Chris Whitney

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Commercial Property Investments: What Advisers Should Know
HEAD OF SPECIALIST LENDING

Chris Whitney

Emerging opportunities 

Arguably, there are more sweeping statements about commercial property than any other part of the real estate sector (think: office space is out! Retail space is in decline!) While such statements can highlight broad surface level trends, the reality is that generalising whole parts of the commercial real estate sector is nearly impossible.

Demand for commercial real estate is continually changing, and as it does, your clients will identify opportunities to capture and (potential) risks to avoid. Take 'the future of the office', for example. Discussions about what working models will look like in the future have dominated discussions in the past couple of years as remote working has become more prevalent. To the uninitiated, it can seem like office space is no longer a solid investment, but the reality is slightly different. Wework recently reported that it expects to see a 30% increase in office space rentals this year based on more companies renting from them to create hybrid office setups and benefit from more flexible leases. JLL also reported that demand for flexible/coworking spaces has grown at a rate of 23% since 2010. Commercial real estate is rarely simply 'out' or 'in' - risk and upsides of an individual property need to be analysed on a case-by-case basis. While trends might suggest one thing or be true in some places, a certain type of commercial property will still present opportunities in others or represent very solid prospects if they are considered differently or offered in new ways.  

Which, of course, isn't to say that new, defined opportunities don't regularly emerge in the space. It's no secret that sectors like e-commerce and the direct to consumer market need more real estate – much of it warehouse property. A 2021 Savills report stated that the UK’s online retailers have increased warehouse occupancy by 614% since 2015 as they look to cater to new demand while looking to circumvent supply chain challenges.

Financing

If your client is looking to invest in commercial real estate, there are plenty of options for financing – even if they want to make a high-value purchase of several million pounds. There is always finance available for the right opportunities, although finding the right lender that is best suited to offer the finance your client needs is critical to securing the investment and getting the best rates. 

The commercial property in question and the long-term success of your client's business investment are often inexorably linked because commercial property finance is repaid through the business' cash flow. Usually, this means that the deal we can secure for your client will be dependent on the revenue the property will generate. Here, Enness will be looking to understand your client's plans and requirements to secure the best deal for them. For example, if your client is buying a business that doesn't currently generate revenue, it may be prudent to factor this into the finance package or provide more information about how soon (and how much) revenue the property will generate to secure a lower headline rate overall. As a general rule, it is easier to secure very competitive finance on commercial properties in high demand and have a strong track record of generating revenue. If this is not the case, we will still be able to get competitive rates, although we will spend more time looking at your client’s plans, revenue projections and, in some cases, other assets or their track record in the space to make a stronger case to lenders as needed. 

In theory, there is no upper limit on what your client can borrow for commercial property finance. What your client can borrow will depend on the property they want to buy, the business' financials and your client's wider experience and plans. There is good lender appetite in the market for commercial properties, and lending of multiple millions of pounds is very possible, and we excel in brokering these types of deals. We regularly source multi-million-pound commercial property finance in the region of 80-85% LTV.

Liquidity and commercial property types

Liquidity is essential in the commercial property market, given there is often competition for the best investment opportunities. Competitiveness is especially important if your client is considering investing in a commercial property that private equity or venture capital groups are also interested in, given these players often have dry powder reserves, which can be attractive to sellers if competing offers don't look solid in terms of financing. Working with a broker like Enness that can facilitate access to the lenders that will offer the best rates and source finance packages quickly and with the best rates and terms is imperative. 

From student accommodation to hotels, hospitality spaces, retail or office space, warehouses, care homes, schools, and anything in-between, Enness can broker competitive finance packages from our network of specialist lenders. 

Get in touch

If you are interested in learning more about how Enness can help your clients or how we can help broker commercial property finance, get in touch today. The team will be able to answer any questions you have and give you more information about lenders, rates and how we can support you and your clients.