14 October 2019/ rent_commercial_property_guide

What is a category C property?

Category C properties are a great opportunity for investors – as long as they are open to risk. They tend to be over 20 years old and located in unpopular areas, so there is plenty of room for improvement and growth. But to understand the benefits of a category C property, it is important to understand how the system works, first and foremost.

What are property categories?

Categories are a way for investors to determine the risks a property carries. They’re based on geographic, age, demographic, physical aspects of the property, amenities and rental income. Lenders, brokers and investors use the categories to negotiate with one another. It means everyone in the process of acquiring or selling a property is on the same level when it comes to discussing risk.

When searching for a new venture, an investor will immediately understand the quality of the property if it carries a category rating. They can decide quickly if it meets their appetite for risk and reward, and whether it will suit their investment strategy.

Categories have also become helpful for anyone renting or buying a property. If you can get to know how the classification system works, you can focus your search and use the insights offered by the category to negotiate the price.

What determines the category of a property?

Here is a snapshot on what properties in each category tend to feature. The characteristics are not fixed, so this information should only be used as a guide.

Category A

Category B

Category C

Relatively new (less than 15 years old)

Usually between 15-20 years old

Usually more than 15 years old

Often professionally managed

Rarely professionally managed

Not professionally managed

High rental rates

Mid rental rates

Low rental rates

Top amenities

Standard amenities

Little to no amenities

Located in popular areas

Located in up and coming areas

Located in undesirable areas

No maintenance requirements

Could benefit from improvements

Require improvements

 

What are category C properties?

These properties tend to be the cheapest on the market. They’re usually over 20 years and may show some signs of decay. They may need updating or complete renovation. Sometimes, these properties are simply situated in undesirable locations and require a little modernisation. In short, they need some TLC and won’t be in a popular area. 

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Why is a category C property a good investment?

Because the properties require improvement, there is an opportunity for investors to make changes to sell or let the property for a significantly higher value. They may also be in a location that is currently unpopular, but the property prices could increase in the future. For example, the area may be close to a city centre, so likely to be transformed as businesses and residents look to move further out to find cheaper property.

However, category C properties carry more risk than those in categories A or B.

Why are category C properties a risky investment choice?

There are no guarantees that the property will offer a return on investment. Work carried out on the property may cost more than the amount at which it increases in value. The investor may find that the work is more significant than they had first imagined, for example.

Unlike category A properties, they are highly unlikely to come with a management service. That means the tenant or investor will have to deal with any maintenance and insurance issues themselves. They may also need to install their own broadband and telephone services and set up utilities arrangements. Investors willing to organise these necessities may find it more cost-effective than using a management service, however.

Because category C properties tend to be based in unpopular areas, it can be more difficult to find a tenant. As an example, offices in villages are unlikely to appeal to big brands that want to be based in the city centre. Businesses may not want to be located in the area for a long time and might be using the property as a stepping-stone. Therefore, the risk of vacancies and the need to look for new tenants can be higher.

How should tenants use the property category ratings?

What is important for commercial property tenants to remember is that category ratings are aimed at investors. And what an investor is looking for may be very different from that of a tenant.

A category rating can be very helpful for businesses looking for first-class properties in the city centre. The property is likely to be in a thriving area, putting your business in a top networking location. It may be highly finished and fitted with first-class fixtures. You may also benefit from a full management service, with lots of costs built-in so you don’t have to worry about paying extra.

However, not all tenants will be able to afford the high rent fees and will therefore need to look at category B and C properties. For these kinds of properties, the classification system isn’t always as clean-cut as it is for those in category A.

To give you an idea, a category C property might have its low rating because it is an office on an industrial estate. Yet for some businesses, this factor is appealing because it is close to where all of its workers live and there is plenty of onsite parking.

Some businesses may also be keen to carry out improvements. Perhaps you they have renovation experience in-house and could do the restoration relatively quickly and cheaply.

Businesses should, ideally, use the category as a guide and do research on the local area, any necessary work and amenities like car parking and storage.

How can you find out the category of a property?

Your estate agent should be able to tell you the category of the property in which you are interested. We list the category in the property description section, under ‘Building class’. Please be aware that ‘Use class’ is different – this refers to what the planning authority has agreed for it to be used as, such as an office, restaurant or shop.

Click here to look through our wide range of properties to let, including those in categories A, B and C. Or if you are looking for a commercial property to buy, click here instead.