The property market in the UK is slowly getting back onto its feet after several years in the doldrums. Homes are starting to sell quicker, sellers are getting closer to their asking prices and the future is looking rosier than it has for a long time.
Now that we have passed the traditional end of one year/beginning of the next slump those with money to invest are on the prowl for properties to sink their money into, so what about investing with commercial property finance?
Stocks and shares or Bricks and Mortar?
The commercial markets on the whole are suggesting that those individuals without experience as commercial property investors should consider putting their money into stocks and shares belonging to those companies who specialise in commercial property.
As it is from here that the experts get the information to allow them to make their predictions questions start to arise. Does this mean it is a good time for new investors to make the foray into commercial properties? Should they hedge their bets by investing in those companies for whom this is a specialist area?
The answer to this very much depends on the actual type of commercial property you are seeking to invest in. A commercial property is defined as one from which you make a profit either from capital gains or rental. This covers everything from buying a garage to rent out to purchasing a shopping mall or a hotel. As the first-time commercial investor is more likely to be at the bottom end of the scale, in the buy-to-rent market, the above advice is less relevant to them than to those with a pocketful of cash and dreams of owning their own luxury spa hotel.
Property Finance and the Buy-to-Let Market
Sticking with the buy-to-let market for the moment, this has changed dramatically as the housing market has readjusted itself.
Would-be landlords were snapping up cheap properties and making a killing just a few short years ago. People were desperate to sell rather than be repossessed when the recession kicked in big style but things are a-changing. Many have found that property prices have risen quickly in their locale and are finding it harder to add to their portfolio for the prices they are prepared to pay. There are still bargains to be had if you are happy to go further afield and are prepared to be a landlord at a distance; so to speak.
Landlords who buy now must be prepared for a smaller yield due to the rising house prices. They cannot, however, raise their rents to cover this as in order to attract a tenant it has to be in line with similar properties in the area. There is also the possibility that a rental property could stand empty for months as, with the economy getting back on its feet, the housing shortage is reducing drastically and at quite a fast pace.
The Rise and Fall of Yields
The last time commercial properties enjoyed a significant run IFA recommended ISA investment in this sector. In many people’s opinions, however, this led to excessive demand due to the weight of the money driving down yields. At the same time, this forced a rise in capital values. An inevitable correction in value, coupled with the ensuing financial crisis, saw financial losses in excess of 30-40% which reflected the fall in values as it happened, and this is a solid market for this area.
The prime property market in Central London is reaching the point where many experts believe it is about to overheat. This should be viewed with caution however due to the source of the information. The basis for this seems to come from conversations which have taken place between fund investors and those high-net-worth people who have stated they are constantly outbid on the stock. They are also complaining that it is getting harder and harder to secure such a property.
The number of bidders for prime property has increased by a huge margin, particularly in the overseas sector with investors looking for a safe haven for their money. One suggested solution is the education of these overseas investors on the fact that life does not grind to a standstill outside of the parameters of the M25.
Right across the country, there are countless businesses that neither need nor want to base their companies within the capital. This in turn yields great opportunities out of the city and into the sticks, so to speak, in terms of investment in commercial properties. Depending on location yields can come within a hair’s breadth of double digits, so if it’s income you are seeking these locations could be exactly what you are looking for.
Property Finance Investments
Speaking of yield, yes, it should be a major consideration when it comes to investment, but consideration should also be given to the tenant covenant, age of the building, lease length and prospects of re-letting or re-sale in the future. With yields being so low on those ultra-prime locations the question must be asked as to whether capital growth is possible in the short-medium terms if your rents are considered to be at market level.
Those who acquire UK-wide investments, which carry a high yield from going in at the beginning in areas forecast to prosper can deal with it easier when demand begins to exceed supply. While this does indeed drive down the yield there is a prospect of capital growth through the yield shift.
It is very likely that the ultimate winners in this sector will be those who are able to identify sound commercial property investment opportunities outside of the boundaries of the institutional markets; in short retail funds. In other words; these are the ones who will be investing in the bricks and mortar rather than the stocks and shares.
So, yes now is the time to invest in the UK commercial property market providing you do so with a little savvy you can still get fantastic deals and it can be a fantastic investment.
Why not talk to us at Funding Guru, Finance about Property Finance solutions – we’d love to hear from you! Call today on 0113 468 1408.
