Dipping your toe in the commercial property market, Gibraltar

Buy to let is a common term for investors who buy a residential property with the objective of letting out the property for profit. It is a hugely popular practice in Gibraltar as it is in the UK. Experienced (and not so experienced) landlords achieve good returns in both income and capital gain terms, much better than the returns from bank deposits these days.

The vast majority of investors stick to what they know – residential. Investors invariably know the value of residential property as they most likely live in one, and have purchased properties for their own residence throughout their life. So the process of buying a residential property for letting out is not too scary. They will already have a view on what will rent well and what is likely to sell at some stage in the future.

However, investors willing to dip their toe into the commercial property market can often find higher and more stable returns.

For a start, the residential buy to let net yields in Gibraltar average just below 5% after taking management costs, service charges and government rates into account. And it is becoming harder to find value as buyers compete for very little property stock currently available in the Gibraltar property market.

Compare this to gross yields of around 6% – 7% experienced by commercial landlords. And then there’s an additional attraction: the commercial tenant pays service charges and government rates not the landlord, so the net yield is the same as the gross yield (less any charges from the property manager if the landlord appoints one).

When it comes to length of tenancies, a residential tenant usually signs for a year in Gibraltar whereas a commercial tenant may enter into a lease agreement of any term, say 3,5, or even 10 years. Rent increases, or the mechanism by which rent is increased, are also agreed at the outset of the tenancy removing the need for that annual clash of the rent increase.

Plus a commercial property investment is more formulaic and unemotional than residential. A residential property is someone’s home and decisions made by a landlord affect people’s lives. Owning a commercial property does not usually have that personal attachment.

As for repairs, then usually, these are for the tenant to resolve in a commercial property whilst most repairs are a headache and a cost for the residential landlord.

In Gibraltar, the same stamp duty rates apply on commercial property as residential and, although there is not a huge supply at any one time, it is possible to buy commercial property at all levels of the price spectrum.

Diversification is encouraged by all financial advisors when it comes to investment portfolios of their clients. Apply that concept to landlords and perhaps those fortunate to have a portfolio should have a look at commercial property.

With the forthcoming Midtown, Victory Place and World Trade Centre developments all on the horizon, there is also ample scope for selecting an off-plan commercial property investment.

It’s at times like this that investors need an estate agent experienced in the commercial property sector that is fully independent from any Gibraltar property developer or legal firm. I might just be able to recommend one…………