The Rise And Rise Of Semi-Commercial

Sally Wright Head of Intermediary Distribution

In the wake of Covid-19, the UK has seen some considerable changes, not least to high streets and commercial premises. Accelerating a trend that was already changing the face of the British high street, online shopping has become the norm, and retail businesses – from local shops to household names – have faced the consequences. Meanwhile, we are all too aware of the impact of lockdown on even the most popular pubs and bars.

However, it is not all negative; for example, where people are working from home more, access to local commercial hubs has become increasingly important. Consumers may be doing their shopping online, but they are looking for social and leisure spaces closer to home. In turn, two years spent in lockdown has led Brits to surge back to support those hospitality businesses that made it through.

In addition, commercial spaces have a potential role to play in addressing the UK’s ongoing housing shortage. The potential for more mixed-use properties, combining commercial and residential, could not only help provide much-needed private rental space, but also feed into this newer, more sociable next phase of British high streets.

According to a report published in January 2022 by the Local Government Association (LGA), the “resilient high streets” of the future, able to withstand both pre- and post-pandemic challenges, will be those that offer “experiences that go beyond purely retail or functional-oriented activities.” The report goes on to outline the importance of taking the local context into account and building community engagement.

This means providing much-needed residential properties, while continuing to create central hubs that provide for the changing wants and needs of the surrounding communities – all of this paves the way for yet more growth in the specialist semi-commercial market.

A lucrative opportunity

A semi-commercial property is one that holds a mix of commercial and residential uses, such as a retail or hospitality business with residential flats above. These properties are split, but more often than not held on the same freehold title.

From an investment perspective, these types of properties can hold considerable appeal. A savvy landlord will always be on the lookout for ways to diversify their portfolio and increase yield, particularly in the face of increasingly restrictive regulation, rising costs, and inflationary pressures. Compared with the standard buy-to-let property, semi-commercial can offer higher yields, with the British Landlords Association (BLA) positing a typical 7.6% return per annum. In turn, just as a house in multiple occupation (HMO) offers the added security of avoiding void periods across an entire property, having income generated by two entirely different sources, one commercial and one residential, provides a certain added stability. This is particularly important, as we have all learned just how quickly unforeseen events can influence a market, and the benefits that can be had from spreading risk. Nevertheless, there are also drawbacks that must be considered. For example, the commercial property market tends to offer less scope for capital growth than residential. On a practical level, mixed-use properties also mean more than one type of tenant, which can make for more management on the part of a landlord, or the increased need for an agent, with implied fees.

For those who understand this balance, and the importance of partnering with the right lender, this could be an exciting investment area.

On the right foot

To this end, HTB has this year revamped and enhanced its semicommercial criteria. With a revised commercial to residential ratio of 50:50, from 40:60, maximum lending up to £25m and 75% loan-to-value (LTV), with no minimum income or maximum age requirements, HTB has listened to broker feedback and adapted in order to open the door for even more semi-commercial opportunities.

Our extensive experience and flexible approach to underwriting means we are able to cater for complex assets – including pubs and offices – while also lending to limited company SPVs, expats, trusts and foreign nationals. HTB is also one of the few lenders in this market who can consider the commercial as well as the residential income when considering the affordability for these semi-commercial assets.

The world is changing, and with it, our attitudes to social, commercial and residential investments must continue to adapt. For many property investors looking to stay ahead of the curve, the future may well include semi-commercial as part of their portfolio.