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Why does commercial land cost more

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  • 12-01-2021
Why does commercial land cost more

Is Commercial Land Worth more than Residential?

Common questions asked by investors include: Is commercial land worth more than residential? Why does commercial land cost more? We hope to answer these questions in this article.

Overall, commercial land is worth more than residential, as they have larger potential incomes and tend to larger in size in comparison, covering more square metre.

The commercial land value will depend on many factors, including the location, the condition, the age, demand and the potential income. Investors closely look at the location and are looking for safe and easy to access areas, with maybe some shops and cafes nearby. 

However, what seems expensive to people outside of the commercial real estate industry, may not be to someone who has years of experience investing in these properties. It’s all down to you and your financial preferences. 

If you would like some more information regarding the values of commercial land, then please get in touch with a professional today. It is important you speak to someone who has years of experience and knowledge about commercial real estate, as it is a very large investment; especially if you are a first-time investor. 

What is Commercial Real Estate?

Commercial real estate is basically a property that can only be used for businesses, and as a workspace. The people that these properties are sold or leased to are people who have evidence that what they are doing with the property will increase income. Commercial real estate properties include buildings such as small shops, office blocks, hotels, restaurants, and even entire shopping centres! 

Commercial real estate properties are usually split into categories to determine their value and uses. These categories include office space, industrial use, leisure, healthcare, retail and multi-family rental. 

As well as being put into categories to determine the uses, commercial properties are also put into further categories to determine their worth. These categories are known as Class A, B and C. 

Class A: These are the top buildings that are within a good age range, condition and location. 
Class B: These buildings are usually bought to be restored by investors. They are usually a bit older and aren’t as high in demand. 
Class C: These are usually the least wanted, and aren’t in a good location, age range or condition. 

Common Uses of Commercial Property

Commercial real estate properties are split into multiple categories to determine their uses or potential uses. The uses will usually be determined based on multiple factors, including location, size, age, condition and potential income. 

Investors look for properties in a safe and accessible location, and they also want to make sure that the property will gain money by ensuring the potential income is high. Larger or higher properties can be made into hotels and healthcare facilities, and smaller properties can be made into local shops and cafes. 

The categories include office space, industrial use, leisure, healthcare, retail and multi-family rental. The properties in the office category are used for small or large companies, and the properties in the retail category are typically used for retail stores, shopping centres, and smaller shops. 

The properties in the industrial category are used for factories and warehouses, and in the leisure category, the commercial properties are used for restaurants, cafes, hotels and pubs. Lastly, in the healthcare category, the properties are used for nursing homes, medical centres and hospitals. 

Why is Commercial Property so Expensive?

Commercial properties are generally more expensive than residential as they require more time and money to build in the first place. This is because they require a larger and more extensive plumbing system and other systems that may not be needed in a residential property. As well as these factors, the properties are much bigger in square footage, which adds more expense to the property, anyway. Not only is it larger on the grounds in square footage, but a lot of commercial properties also build upwards, which again, adds to the value. 

The costs of commercial properties are also determined by many other factors, which include the age of the property, the area it’s in, the exact location, the accessibility, the overall condition, demand and many more. Investors are looking for a property that is easy to find and in a safe area. 

If there is a high demand in that area for commercial real estate, then this will mean the properties will increase in price, and if there is low demand in the area, then the properties will usually be cheaper. 

Can a Residential Property be put to Commercial Use?

If the rules of the housing association don’t say otherwise, it is possible to use your residential property for commercial purposes. However, if you live in rented accommodation, your landlord may increase your monthly rent, as they will have to pay extra for their building to be used for commercial purposes. 

This is because, as soon as the conversion is complete, that building will then be treated as a commercial building, including charging tax. It is essential that you take your plans into full and careful consideration before you carry them out, and ensure you cover everything you need to, in order to make the conversion. However, some jobs or home set-ups don’t require the conversion from residential to commercial. These include one to one tutoring, dance classes, yoga sessions and painting. For more information, please speak to a professional. It is important to know all the details before you start making any plans. 

How do I Buy my First Commercial Property?

There are many steps you must take when buying your first commercial property. The first step is to decide the reasons why you want to invest in a commercial property, and what you want to get out of it. Deciding this will also help you to plan your future in the commercial real estate investment industry. 

Next, you need to decide which type of commercial property you want to buy. For example, do you want an office building, a shopping mall, apartments, retail, warehouses, or something different? Thirdly, you want to ensure that both your personal and business credit scores are good, as these will be checked. Once you have done this, you will be able to select a finance option that you’ll qualify for. 

It is also essential that you ensure you surround yourself with a highly professional, expert and qualified team to support you, such as an accountant, mortgage broker, and a commercial real estate or tax attorney. Now you can start looking for your property. You need to research into the property market as much as you can, including locations that are in high demand, work out the potential income for the property and plan what you want to do with it. 

Once you have taken all these steps, you can make an offer!

BENEFITS OF COMMERCIAL LAND OVER RESIDENTIAL AS AN INVESTMENT?

There are many benefits of commercial land over residential as an investment. It is important to choose the right path for you, your future and your finances. If you are struggling, it is so important to get in touch with a professional to help point you in the right direction. Here are a few of the benefits:

  • Commercial properties offer longer lease terms.
  • They provide a higher potential income than residential.
  • Commercial properties are in lower demand than residential, so there won’t be as much competition.
  • With residential properties, you have to sort the maintenance out for yourself.
  • The taxes for commercial properties are much more laid back. The value for residential properties can fluctuate depending on other properties around the area.

If you want to know: Is commercial land worth more than residential? Then there is a good chance that you are looking to invest in a commercial property. If you are looking for commercial property valuation in Tonbridge, Kent and the surrounding areas, our RICS expert witness can help.