Last month, Samir Mahdi considered buying a 40,000 sq ft industrial site in Sunderland from Booker, a Tesco-owned wholesaler. The property, priced at £1.1mn, offers a 6.6% yield with £78,000 annual rent and eight years left on the lease. Mahdi, whose portfolio is half residential buy-to-let, noted that commercial investment requires deeper due diligence than residential, including assessing tenant stability, local economic prospects, and potential value-add opportunities.
He investigated asbestos risks in the ageing building, checked local 'To Let' signs via Google Maps, and consulted a nearby agent to gauge tenant demand and lease trends. Mahdi emphasized that longer local lease lengths (10–20 years) signal business confidence, while short leases indicate economic concern. He also evaluated Sunderland’s growth prospects relative to Manchester and Leeds under Andy Burnham’s northern focus, modelling worst-case scenarios where the Booker tenant leaves after eight years, leaving him liable for business rates (~£39,000/year) on an ageing asset.
To mitigate risk, he considered building a new warehouse or seeking a change of use to offices or residential via local planning. Despite complexities, many residential landlords are shifting to commercial property due to tax and regulatory pressures on BTL, attracted by higher yields, longer leases, and lower management burden under full repairing and insuring (FR&I) leases. Mark Gower of Allsop noted a significant rise in such transitions over 18 months, while Louis Theed of Propp observed that BTL investors often start with semi-commercial units like flats above shops due to more favourable mortgage rates.
Source: Financial Times Companies · Summarized by HeadlinesBriefing