Vacant commercial property finance for empty offices, shops and industrial units
Vacant commercial property finance is short-term lending, usually a commercial bridging loan, secured on an empty building and lent against its value with vacant possession, so you can buy or raise money on it before it has a tenant or a trading business. It exists because most commercial mortgage lenders need rent or trading accounts to lend against, and an empty building has neither.
A bridge gives you time to refurbish, re-let, occupy or sell. This page explains how lenders look at empty commercial property, what holding it really costs and which exits they will accept.
Key takeaways
Mainstream commercial mortgages need rent or trading accounts, so empty buildings usually need a bridge first.
Vacant commercial property finance is lent on market value with vacant possession, which can be lower than a let value.
Budget for empty rates, unoccupied insurance, security and interest throughout the void.
A credible exit by letting, occupation, change of use or sale is what lenders assess hardest.
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Why do mortgage lenders turn down vacant commercial property?
A commercial investment mortgage is sized on the rent. Lenders test that the rental income covers the interest by a set margin, and with no tenant there is nothing to test. An owner-occupier commercial mortgage is sized on the business's accounts, which does not help if the business has not moved in yet. Add the questions an empty building raises and most mainstream lenders step back:
No income to cover interest from day one.
Uncertain re-letting: why is it empty, and how long will it take to fill?
Condition: empty buildings deteriorate and may need work before anyone will occupy them.
Insurance and security: unoccupied buildings carry higher risks of damage and squatting.
Bridging lenders take a different view. They lend against what the commercial property would sell for, and they want a clear plan for how it will be let, occupied or sold within the term. Our guide comparing commercial bridging and commercial mortgages sets out where each product fits.
How does vacant commercial property finance work?
The structure of vacant commercial property finance is simple. A bridging lender takes a first charge over the empty building, lends a percentage of its vacant possession value, and is repaid when the building is let and refinanced, occupied by your business and refinanced, or sold.
Enquiry and terms: we review the property, the reason it is vacant and your plan, then obtain indicative terms.
Valuation: a RICS valuer inspects and reports on market value with vacant possession.
Legal work: solicitors on both sides deal with title, searches and any leases being surrendered.
Completion: funds are released, with interest usually retained or rolled up so there are no monthly payments while the building earns nothing.
Exit: you let, occupy or sell and repay the bridge.
Where the building needs work before it can be let, works funding can be added. Our page on refurbishment bridging loans covers how that is released.
How do bridging lenders value an empty building?
The valuer reports the price the commercial property would achieve with vacant possession in the open market. Empty buildings are compared with sales of similar vacant stock, not with let investments, which can make the figure lower than the price a let building would fetch. Some lenders also ask for a restricted marketing period value, showing what it might fetch in a quicker sale.
Property
How lenders tend to view it when vacant
Industrial and warehouse
Generally well supported, with a broad pool of occupiers and buyers
Office
Depends heavily on location, specification and whether it suits modern occupiers; conversion potential can support value
Retail
Prime pitches and parades with flats above are easier than secondary high street units; Class E flexibility helps
Specialist (pubs, hotels, care homes)
More cautious: closed trading assets lose value quickly, so loans are smaller
Have a deal in front of you?Send us the property and the numbers. We will tell you quickly whether it is fundable.
What does it cost to hold an empty commercial property?
A vacant building costs money every month, and lenders will check that you have allowed for it. Build these void costs into your appraisal:
Cost
What to expect
Business rates
Empty property relief in England usually runs for a short initial period, after which full rates are often payable; check the position with the local authority
Insurance
Unoccupied property cover, often with inspection and drain-down conditions
Security
Alarms, boarding or guarding, especially in town centres
Utilities and maintenance
Standing charges, heating to prevent damp, routine repairs
Service charge
Payable by the owner on multi-let estates and shared buildings
Finance costs
Monthly interest, arrangement fee (typically around 1% to 2% of the loan), valuation and legal fees
The longer the void, the more these add up. A realistic letting period from a local agent, rather than an optimistic one, is your strongest protection against running short. Take advice from your accountant on rates and tax.
What insurance and security conditions do lenders set on vacant property?
With vacant commercial property finance, lenders need to know their security will still be there at the end of the term. Before completion, expect them to require:
Unoccupied property insurance for full reinstatement value, with the lender's interest noted on the policy.
Compliance with the insurer's conditions, such as regular inspections, water and heating drained down and post sealed.
Reasonable security appropriate to the building and the area.
Notice of any change, such as a tenant moving in or works starting, so cover can be updated.
Breaching insurance conditions can void cover, which in turn can put the loan in breach. We raise these points early so they do not delay completion.
What exit routes work for vacant commercial property?
The exit is the centre of any vacant commercial property finance application. Lenders typically accept:
Let and refinance: sign a tenant and refinance onto a commercial investment mortgage. Lenders will look at lease length, break clauses, rent and tenant strength. Our commercial bridge to let page covers this in detail.
Owner-occupy and refinance: move your own business in and refinance on the strength of its accounts.
Sale: sell the building, often after light works or once a tenant is signed.
Evidence matters. Agents' letting advice, heads of terms, an occupier's interest or a decision in principle from the refinance lender all strengthen the case and the pricing.
Which type of finance fits a vacant commercial property?
People often ask what the main types of finance are. For property, there are four core options, and only some of them work for empty buildings:
Finance type
Fit for vacant property
Commercial mortgage
Usually not, until the building is let or occupied
Bridging finance
Yes: lends on vacant possession value with an exit plan
Development finance
Where the building is being substantially rebuilt or converted
Second charge or equity release from other property
Can fund the purchase or a deposit from elsewhere
Equity from partners or investors can sit alongside any of these. If the building is empty because it is a cleared site, see bridging loans for land. Test your numbers with our LTV calculator.
Unregulated commercial and investment bridging is arranged directly. Any case where the security includes a home you or an immediate family member occupies, including a flat above commercial premises, may be regulated and is introduced to a firm directly authorised by the Financial Conduct Authority. We are not directly authorised by the Financial Conduct Authority ourselves. Your property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
What is the current average return on commercial property in the UK?
Returns vary widely by sector, location, lease terms and the condition of the building, so a single average figure can mislead. We do not publish yield or return statistics. For a specific property, your agent or a RICS valuer can advise on the market yield, and we can show how different rents and values affect what you can borrow.
What are the four types of finance?
For property, the four core types are commercial mortgages, bridging finance, development finance and second charge borrowing, with equity from partners or investors alongside them. For a vacant commercial building, bridging is usually the starting point, because mortgages need rent or trading accounts that an empty property cannot yet provide.
Can you get 100% development finance?
Not usually on a single property. Lenders expect equity in the deal to protect them against falling values or rising costs. Higher funding is sometimes possible with additional security over another property, mezzanine or joint venture equity, or a purchase at a genuine discount to value. Each adds cost or risk, so we model it carefully.
How many years do you have to be self-employed to buy a house?
That is a residential mortgage question, and residential lenders set their own requirements for evidence of self-employed income, so speak to a residential mortgage adviser authorised by the FCA. Commercial bridging is assessed differently: lenders focus on the property, your contribution and the exit, so a short trading history is less of a barrier for an investment purchase.
Can I get a commercial mortgage on an empty building?
Occasionally, where the borrower is strong and the building will be occupied quickly, but most commercial mortgage lenders want rent or trading accounts to lend against. Bridging is the usual route for vacant buildings, followed by a refinance onto a commercial mortgage once the property is let or your business has moved in.
How long can a bridging loan on a vacant property run?
Terms run from 1 to 24 months, most commonly 6 to 18. Set the term around a realistic letting or sale period plus time for the refinance, rather than the shortest possible term. Repaying early is usually cheap, but extending a bridge that has run out can be costly.
