After a rocky few years during the pandemic, the commercial property market has proven its resiliency in recent months, with strong property price growth, rent price growth, and high demand for tenancies. According to recent figures from the CBRE from early 2022:
‘All-property capital value growth for the year [reached] 13.8%. This growth was predominantly driven by exceptional month-on-month performance in the Industrial sector. In December, All-property rental values continued to increase, rising 0.8%, taking annual growth to 2.5%. Total returns were 4.1% over the month taking returns to 19.9% for 2021.’
This is backed up by other reports. A number of big-ticket commercial property sales took place in London during the early part of 2022: recent research from Knight Frank reveals that, ‘since the turn of the year, investment in the capital’s real estate has quadrupled compared with the first quarter of 2021’, and ‘the value of deals is £1 billion above the average over the past 10 years’.
Demand from tenants is likewise buoyant. One of the UK’s largest property companies, Landsec, has reported ‘record office leasing in London as the lifting of Covid restrictions fuels a return of workers and a surge in demand for prime space’. At Articus Finance, we’re seeing more enquiries than ever before for commercial property mortgages as both private and institutional investors demonstrate their appetite for this market.
The conclusion? If you’re looking to invest in commercial property, now is a good time to ride the upward swing.
How do I arrange a commercial mortgage?
Whether you’re eager to invest for the first time, are expanding your portfolio, or want to refinance an asset, you’ll need a commercial mortgage. Commercial mortgages – a type of finance used to purchase or refinance the premises of a business – can be used on a wide range of property types. Brokers in the Articus team regularly arrange commercial mortgages against property including but not limited to:
- Offices and office blocks
- Shops or retail units
- Leisure facilities
- Warehouses and industrial buildings
The best way to arrange commercial property finance is to work with a specialist broker. Unlike residential mortgages, which can often be arranged directly with the lender, the majority of commercial lenders don’t advertise their rates openly. Accordingly, many deals can only be accessed via an intermediary such as Articus.
A broker can also help you navigate the various complexities involved in submitting a commercial mortgage application. Securing the best deal for a commercial mortgage involves preparing carefully, presenting your case in the best possible light, and negotiating with the right lender.
Lenders typically want to see that you have a reliable tenant with a long-term tenancy agreement in place before offering you a commercial mortgage. This gives peace of mind that you’ll be able to service the loan, whether you’re purchasing a new commercial property or refinancing an existing asset. There are many other legal and administrative considerations in addition to this, and Articus can help present your case in the best light.
If you don’t have a tenancy agreed (perhaps in the case of an asset you already own and need to refinance) it is still possible to proceed, but this is likely to be a far more complex process.
How do I secure the best deal for a commercial mortgage?
Commercial property mortgages have always been more expensive than residential mortgages, as they represent a greater risk for the lender. And, just as residential mortgages are increasing in price due to base rate rises, the cost of commercial property mortgages is also edging up.
That doesn’t seem to be dampening market enthusiasm for commercial property investment: many commercial assets actually offer a higher yield than buy-to-let properties, meaning they’re a favourable option for those looking to turn a profit from property. However, the changing market does mean it’s worth thinking very carefully about the financing of your commercial asset.
Many commercial mortgages are paid at a variable rate, with the rate quoted at X% over the base rate. But fixed rate mortgages are available for commercial property investors – which is increasingly desirable at a point in time when interest rates are rising fairly regularly.
Either way, using a broker who can negotiate the best deal on your behalf is critical. Even small savings on your interest rate can have a big impact on your ultimate margins.
Looking for further guidance?
Securing any form of specialist finance can be complicated – and commercial finance is no exception. Whether you’re purchasing or refinancing a commercial asset, the Articus team are on hand to help you secure the best possible deal in the fastest possible timeframe, so you can maximise the return on your investment.
Want to learn more about our commercial finance offering? Speak to an Articus broker today.
