Market Insight

Why invest in commercial property?

March 7, 2016

There’s no getting away from it, the start to the year was truly terrible from an investment perspective. The effects of share drops in China coupled with scaremongering around a potential UK exit from Europe, really set the cat amongst the investor pigeons.

For high net worth individuals with large amounts of money sat in the bank, or investments in bonds, shares and equities, it has been a frustrating few years of low interest rates.

Often the best return you could hope to achieve on your money has been in the region of 1% or less, which after fees might, in reality, mean that you earn nothing at all on your investment.

With this in mind, it’s no wonder that more and more UK family estates are turning to commercial property investment as a meaningful alternative. And it doesn’t have to be the risky affair it is reputed to be.

Investing in property is quite a tangible thing – you can touch it, feel it, see it. Not only that, if you have a suitable tenant which is vetted appropriately with a good financial status, there is no reason why you can’t earn a 6% return on your property investment.

Such a potentially healthy return on investment is an attractive prospect and one which foreign investors have been quick to capitalise on.

In recent years we’ve seen more and more overseas investors from countries across Asia Pacific, US, Canada, China the Ukraine and soon, most likely, Iran continue to plough money into UK property, as economic problems, civil war or foreign sanctions have taken hold in their native countries.

However, the UK represents a relative safe haven for foreign investors, which together with the fact that we host the number one finance house in the world, means that commercial property investment has become an attractive opportunity.

If you look at England compared with overseas, the occupier market is doing better, the financial market is performing better and business generally is doing better. What this means from a property perspective is that you are far less likely to lose your tenants overall.

What is more, since permitted development rights were introduced on office space and anticipated to be extended to 2019, we’ve lost a lot of office space which has since been turned into residential housing. This has led to increased rental values which, from an investor perspective, means that you would be more likely than ever to be able to replace tenants if you invest in office space as well as seeing rental growth.

If you were considering investing in industrial real estate, then you can benefit from the relative cost effectiveness of refurbishing properties in this sector. Therefore, lots of investors view this as quite an attractive asset to hold because it requires little capital expenditure, tenants will often take 5 year leases at least and the recent lack of speculative development has caused a lack of supply, resulting in increased rents and reduced rental incentives.

The bottom line is that although the economy continues to do better than it has done in recent years, low interest rates continue to plague the high net worth investor. With cash investments continuing to yield so little, now might be the time to diversify your investment portfolio, and consider an element of commercial property investment to potentially increase your returns.

For more information or advice in relation to commercial property investment, don’t hesitate to contact our team of expert advisers.