It is clear, even to the most disinterested observer, that the investment sector in the United Kingdom is suffering significant turbulence in the context of the current geo-political headwinds. With the stock market increasingly volatile and all forms of fixed interest and ‘cash’ investments offering near minimal returns – indeed negative returns when inflation at 3% or so is taken into account – investors are struggling to find ways of maintaining the value of their hard-earned investments.
The buy-to-let residential sector has been very popular, particularly in the Bishop’s Stortford area, where there is a ready market of potential occupiers and a good stock of suitable rental accommodation.
However, even in this sector, the Government have contrived, with the usual finesse of using a sledgehammer to crack a nut of perceived excessive foreign investment in the Central London market, to make the playing field for buy-to-let landlords significantly more challenging. A combination of increased Stamp Duty, the threat of regulation around a landlord’s right to obtain vacant possession at the end of a lease, and taxation changes to the treatment of income have meant that this once attractive investment sector has lost a significant amount of its gloss.
From a national perspective, some 90,000 private landlords have, according to reports in the national property press, quit the buy-to-let sector in the last 12 months.
Aside from the obvious issues around the counter-productive nature of this response in relation to the supply of new housing, it is clear that yet another investment avenue is proving difficult.
Conversely, the commercial property investment market has shown real signs of both rental and capital growth over the last couple of years and now offers a genuine opportunity for high net worth individuals and pension funds to consider this asset class as an alternative to more traditional forms.
One of the major drawbacks in the commercial sector is a scarcity of lots below £500,000 and the consequent tendency to become over-exposed to a single asset or property in relation to an income stream, whether for pension or personal use.
Given the wider shortage of supply in the commercial property market across all sectors, it is likely that there will be continued rental growth, particularly in the industrial and office markets, where there are opportunities to achieve income returns of 6% to 7%.
The retail sector is suffering from very well publicised headwinds which are unique to this sector, and there has been a consequent re-evaluation of retail property as an asset class. However, it is true, from our own experience, that in the right location there is still an appetite for retail shops: not necessarily in the traditional retail sectors, but in the service and hospitality sectors of the market we are experiencing a genuinely high level of demand.
The key to a successful property acquisition is to understand two things: firstly, that stock selection is of paramount importance (generally the profits are made from astute acquisition), and secondly, the property sector is a medium to long-term investment plan.
Gone are the days when speculators could expect to make a ‘quick buck’ on turning property; the transactional costs in relation to Stamp Duty, legal fees and other due diligence, make a transaction expensive to execute and anyone seriously considering commercial property should be looking at a five-year plus time horizon.
Having said all of the above, evidence from the auction houses, and from our own transactional activity around smaller investment properties, suggests that the market is buoyant and is likely to remain so, particularly amongst the small to medium lot sizes.
Investors seeking a real return, in an asset class which has the attributes of being physical, should consider commercial property as a realistic alternative to other sectors.
A particular advantage of commercial property is that it can be held in a self-invested pension fund which, subject to the individual’s circumstances, can have significant advantages in terms of taxation and, potentially, inheritance.
If you would like any further advice or information in respect of commercial property opportunities, we would be delighted to hear from you.
