In a world where diversity is desired and risk is out of vogue, it’s not surprising that the benefits of managing a diverse commercial property portfolio outweigh the challenges. We may be living under the shadow of Brexit, but when high profile London commercial properties are proving resilient with substantial investment from overseas it makes sense that regional commercial property should follow suit.
If as a landlord you are seeking to increase the number of your investments, it is a natural inclination to continue in the field in which your investments already exist. You know the type of tenants that you will seek to attract and the trends of the business that follows. You have probably become familiar with the legislation that is required of you and your lease negotiations will likely cover similar ground.
However, looking beyond this inclination, it makes sense to minimise your risk by investing in commercial property that takes in diverse building types, businesses and locations.
Losing a Tenant
Clearly, the safest path is to simply not lose a good tenant, and a positive relationship can be easily forged by involving an experienced property manager. However, should your agreement come to an end, the peril of vacant occupancy does not just mean that your income is at zero, but that it is in the negative. Your insurances, maintenance schedule and business rates after three months still exist as costs which make vacant occupancy so damaging to your yields. So, if your property portfolio is made up of just office spaces or just retail spaces and a significant decrease in demand by appropriate tenants occurs, your income will doubtless suffer.
To really diversify your portfolio and benefit from the reduced risk to your income, consider how a mix of retail, office and industrial space can decrease any sector-specific risks. Industrial premises benefit from extended relief of business rates on vacant occupation for example. Natural economic flow means that demand for office and retail space follow their own distinct trends of supply and demand.
The challenge here is in the extent of knowledge; both of industry trends and sector-specific legislation, that is required. For a commercial property manager who has experience across all of these fields of business, the nuances of contract negotiation between industries do not present a difficulty. Similarly, attracting tenants and marketing your units effectively varies from sector to sector, so you can make use of the breadth of contacts and experience from which a commercial property manager benefits.
Far and Away
Where many trends in commercial property follow a similar path countrywide, there is naturally a more local economy of which it is important to be aware. In this way, diversifying the areas from which you add to your commercial portfolio can protect you from succumbing to any area-specific depreciations in property. Some events which can affect the local value of business buildings such as a major national infrastructure change can be predicted in the medium term, but for long-standing investments or unexpected events of force majeure such as flooding, foresight is not possible.
In this case, it is clearly a benefit to invest across a wider distance. However, when popular advice is to invest locally where you know the market, where is the sense here? By using Curchod & Co’s experienced property management and investment agency teams who cover a substantial territory, you can benefit from the local knowledge held by managers whilst still spreading your investments across counties.
The location and sector of your commercial property are the most pivotal decisions that you will make in the future health of your investment. By working with the advice and ongoing management of an experienced commercial property manager, you can benefit from diversified risk without the challenges.