With scores of empty units cropping up on Britain's dwindling high streets, Zoe Dare Hall looks for signs that can help point to the right commercial location.

Sign language: walk around a shopping centre to get an idea of retail trends and true commercial value Photo: © Alamy

Property investment opportunities work roughly in tandem with the wider economy. When growth is good, retailers need more shops, manufacturers more factories and warehouses and companies more offices.

But the residential and commercial markets don’t necessarily follow the same path. Each has peaks and troughs influenced by different drivers of supply and demand. And within commercial property, the retail, office and industrial sectors will each be swayed by different factors. Investors need to understand those drivers before they try to forecast the next opportunities.

Credit is key to the health of the property marketplace. “The market in secondary commercial property has reached the bottom. The slump has been fierce with the value of some property dropping by half, if not more,” says Damian Lloyd, director of GVA property consultancy. “The difference between the secondary commercial market and the residential one, which has held a comparatively steady course, is the availability of credit. While tighter than during the boom, credit is much more widely available than for secondary commercial investments.”

Retail is the easiest sector to read, thinks Mat Oakley, Savills’ head of commercial research. “You can stand on a high street or in a shopping centre and see consumer demand, count the shops and voids and identify what’s missing,” he says.

“The best places to invest are those transitioning from poor to average or average to prime. Also look to housing trends. Strong price growth can suggest an overflow from a more expensive area and a new type of shopper entering the area.”

Location planning consultants Caci’s latest Retail Dimensions report looks at how consumers use retail centres around the UK and how much they spend in each. The broad conclusion is bleak, with 2,750 of the UK’s 4,000 shopping locations “so poor that they will struggle to survive as viable locations... beyond 2015”.

But Caci also offers a glimmer of hope, pinpointing Milton Keynes as the best retail opportunity in the UK, with scope to expand its centre’s retail offer by 200 per cent. Croydon, Crawley and Lancaster also offer good development potential and the recent opening of Whiteley Shopping Centre between Portsmouth and Southampton points to the new type of development likely to crop up outside city centres.

Also pivotal to a retail property’s success, says Charlie Edwards, a director at Bells Commercial, is the strength of the tenant. “A few years ago, someone might have been sitting pretty with a shop let to Jessops. Suddenly they are left with an empty unit, insurance to pay for and no relief against their business rates.”

Landlord compensation is unlikely. “A rent deposit held tends to run out quite quickly and a landlord might insist on a personal guarantor, in the case of a new, small company, but if the business folds, they may be untraceable,” says Mr Edwards. “The best course of action is to get the property back and re-let as soon as possible.”

With offices, large-scale new development – usually started during a boom and delivered in a downturn – will leave a lot of stock lying empty and reduce values and rents. “We generally assume that when the vacancy rate in an office market is above 10 per cent, that rental growth is unlikely,” says Mr Oakley.

For future opportunity, he says investors should look for signs of upscaling – new transport links, better retail or a new office building that is changing the perception of the location.

Demand from companies for commercial property can be fickle and harder to predict than for residential property, which creates opportunities as well as threats for investors, according to Christopher Reeve, a partner in Bidwells property consultancy.

“The adage that one person’s loss is another’s gain certainly applies to commercial property, where values jump up and down dramatically, hinging on interest from what is often just a handful of prospective business tenants,” he says.

“The effect is exacerbated by much of a commercial property’s value depending on the lease and the tenant’s financial status – whereas residential values are pretty much the same, whether let or vacant. As a consequence, there is a genuine opportunity with commercial property to buy low and sell high if a new source of demand can be tapped into.”

Commercial property is notoriously cyclical – so where many large high street retail units were sold cheaply and converted to pubs in the mid Nineties, now pubs are struggling and investors are converting them back to retail.

“Disused pubs can be well located for supermarkets, so investors are buying them at rock-bottom prices while tying up deals with the likes of The Co-operative Food or Sainsbury’s Local. The skill in spotting angles to breathe new life into vacant commercial property is where real money is made,” says Mr Reeve.

Whatever your decision, you need to be looking at a minimum of five years with property investment. “While it requires more patience,” says Mr Lloyd, “property investment also provides you with the security of bricks and mortar.”