The Benefits, Drawbacks, and Potential of Investing in Commercial Property

This is a partnered post.

Commercial property has so much potential and, despite the drawbacks, could be a really good investment idea. Read on to discover the cons, and to see how the pros outweigh them…

Any property conveyancing law firm will tell you that investing in a property is a no brainer when we consider the benefits attached to it. Whether it be a property in the UK, investing in the staycation industry, or a property abroad, like the tax-free Cayman Islands, the potential is endless.

The questions is, are the benefits as golden as they seem and, once invested, is there much potential? In this article, we’ll be diving into the benefits and drawbacks of investing in commercial properties. We’ll then take you through 10 industries you might want to branch out into once you have your property…

The Benefits of Investing in Commercial Property

Starting with the many benefits of investing in commercial property, there are plenty where that came from! Some of these pros include:

  • Provides steady income alongside any other jobs you have or property you own
  • Aren’t restricted to one target market
  • More tenants, with less risk attached to them
  • Can form better and more ongoing landlord/tenant relationships than with residential property
  • Opportunities for capital growth
  • Higher income potential and profit margins
  • Longer lease lengths than with residential property, so less risk, and less work for you
  • Tax incentives due to tricky maintenance
  • Clients may be more conscientious about keeping the place clean and tidy
  • Responsibilities are more realistic, as you’re much less likely to receive maintenance calls in the early hours or on weekends
  • Value increases over time
  • There’s less competition, compared to residential property

The Drawbacks of Investing in Commercial Property

As we’ve seen, there are so many reasons why investing in this way is a good idea. That said, no one can make an informed decision without seeing the cons as well. This list should give you a good idea of the risks associated with this business plan:

  • You have to think about location before investing
  • Too much choice to make a decision as to what to do with your property
  • Maintenance is hard, especially when you’re dealing with business owners, who may be more picky
  • Investment figures may be heavier to begin with
  • Values of the property may be volatile, and at risk of dropping sharply
  • Risk of the business on the property going bust
  • More costly to remove the tenant if the business does go bust
  • More legal costs if things go wrong
  • More complicated terms and contracts
  • Economic conditions may change things frequently

Potential Industries for Your Commercial Property

Now that we know the benefits and drawbacks of investing in property with a commercial potential, how will you use your building? The options are seemingly endless, so here is a little list of some ideas to get your mind going…

1.   Tourism

There’s a lot of money to be made in the tourism industry, especially abroad. In fact, 2018 saw a record 4.63 million tourists visiting the Cayman Islands alone. With such a lot of footfall for a small set of islands, imagine what investing across the world could yield!  With this in mind, you could convert your commercial property into a hotel, tour guide service, language translation service, or even a souvenir shop. It all depends on the size of your property and how much renovation you’re willing to invest in.

If you’re thinking of getting into the tourism sector, the possibilities for your property are seemingly endless. A list of the types of business you could use your commercial property for include:

  • Transportation service: transporting tourists to their holiday destination, either from the airport, to the airport or to an attraction.
  • Accommodation: includes hotels, guest houses, hostels, bed and breakfasts, lodges and any other place a tourist might stay whilst visiting.
  • Guided tours and tourist guides: to provide entertaining and informative tours through the local attractions.
  • Travel agency: helping tourists book tickets to places, visit the main attractions, and book transportation and accommodation. Basically, help the tourist with anything and everything on this list.

2.   Office Space

If you’d rather not run a business out of the property yourself, you could convert your commercial property into office space and rent it out to other businesses. All you need to do is spend money renovating your commercial property, and once it’s done you can collect rent and serve as the property’s landlord.

 

If you decide to renovate, try to incorporate a good design so that people choose your space over others in the area. The design of an office space is seen as a significant factor in renting out a property, and anyone looking to rent your office will have this in the forefront of their mind. Make sure you do evidence-based research on the type of design that creates an optimal working environment and go from there.

3.   Coffee Shop

It’s up to you whether you want to run this business yourself, or create a retail space that other people will want to rent from you. Either way, there are certain factors you should bear in mind for this option.

When it comes to the coffee shop sector you want to make sure you have a good location where tourists and residents want to spend their time. If your commercial property is around the back of an industrial complex and someone else has a coffee shop on the beachfront, you’ll lose out every time.

You also want to make sure the competition isn’t too fierce in your location, otherwise you’ll end up competing with 10 other coffee shops. If your commercial property isn’t in the right location, it’s probably better to use it for something else. That said, if you do have the right location, the next step is to develop a floor plan and get renovating.

4.   Restaurant

Similar logic can be applied to the location of a restaurant as we applied to the coffee shop idea. The major difference between the two is the amount of renovation needed to get the businesses running.

Fortunately, restaurants tend to make more money than coffee shops, so you should see a return on your investment. Restaurants in holiday destinations also tend to make more on average than restaurants at home in the UK. With this logic, why not just go for it?

5.   Gym

In the UK, there are roughly 6,700 health and fitness clubs used by approximately 9.7 million members. The majority of these clubs generate a turnover between £100,000 and £250,000 making them a highly lucrative industry to get into. So, you could quite easily convert your commercial property into a gym.

The focus on design and location isn’t as important as with coffee shops and office space. As long as you have everything a person needs to stay fit, you could stand to make a lot of money in this industry. With a quick renovation, and by purchasing some gym equipment, all you then need is someone to run it and you’ve got yourself a viable business.

6.   Yoga or Dance Studio

The reason we’ve separated this idea from gyms is because the industry is slightly different, and the renovation of your commercial property is a lot cheaper. You might have to put more money into the aesthetics, as dance and yoga are all about the space you do them in

However, none of your money would be spent on equipment, as the human body itself is the equipment. Ultimately, the flooring and mirroring, as well as health and safety equipment, and having a market for it, will be all you realistically need for this business idea.

7.   Recruitment Services

There are lots of people in the UK looking for work, here or abroad, so being the middleman between job-hunters and companies could be an interesting and lucrative niche. Simply convert your commercial property into an office, hire some decent recruitment consultants to work out of it, and you’ve got yourself a decent business.

8.   Haulage Business

We’ve covered a lot of public facing business ideas so far, but it’s time to get into some still very lucrative, but less customer focused ideas for your commercial property. Depending on the type of property you have, you could keep a fleet of trucks on site and make money helping importers or business owners move their merchandise from the port to designated places.

9.   Wholesalers

Another use for your commercial property is wholesale. Wholesalers buy products in quantity from manufacturers and sell them to retailers and distributors. Most of the time, manufacturers are reluctant to sell their products to retailers outright. So, using your commercial property to house their goods and sell them on at a higher price is a great way to make money.

It’s up to you whether you distribute the products yourself or just house them. If you choose the latter, you just need to convert your property into a warehouse and either rent it to wholesalers, or run it yourself.

10.                Hundreds of Other Businesses

There are too many ways you could use your property for commercial use. We’ve given you a few detailed examples in this piece, but it’s a good idea to give you a list of other ideas so you get a feel for the full potential of your property. The many more ideas we want to give you here include:

  • Hairdressers
  • Post Office
  • Funeral Director
  • Pet Shop
  • Sandwich Bar
  • Showroom
  • Dry Cleaner
  • Internet Café
  • Estate Agents
  • Betting Shop
  • Pub
  • Wine Bar
  • Hospitals
  • Nursing Home
  • Residential School
  • Residential College
  • Residential Training Centre
  • Cinema
  • Concert Hall
  • Bingo Hall
  • Casino
  • Swimming Pool
  • Skating Rink
  • Theatre
  • Scrap Yard
  • Petrol Filling Station
  • Shops selling or displaying motor vehicles
  • Nightclub
  • Launderette
  • Amusement Centre

Some of these will depend on the type of property you own, but I’m sure there are enough ideas there for you to go on.

Your Commercial Property has Endless Potential…

That concludes our list of ways to utilise your commercial property. Clearly, the benefits of investing in a commercial property can’t be overstated. Hopefully we’ve given you a few good ideas that you can research further and make into a viable business.

Ultimately, you can convert your property into any business you want. It could be a passion project, a business you want to run yourself, or a property you want to collect rent from. Whatever it may be, we wish you luck with your property hunt, and hope your brain is full of interesting ideas now!

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