Steve Hawkins, based in our Peterborough office, reports on the effects that the Brexit vote has had on the Investment Market, without the UK leaving Europe in an official capacity.
Since the UK voted to leave Europe in June, the local and regional commercial property investment markets, as a result, were relatively quiet in July and August. Nationally, we all saw a potential issue with major funds suffering potential excessive redemptions as investors rushed to extract their money after seeing reports of a commercial property meltdown.
However, many large institutions have, it has been reported, seen an easing of the "fear factor" and sale values have actually exceeded book values since the vote.
So what is going on?
Are foreign investors seeing bargains in the UK commercial property market helped by a favourable exchange rate? At a guess, yes; to a degree. When you look at what returns you can get versus other forms of investments, it is hard to ignore bricks and mortar - especially warehouse and industrial units, as well as offices and retail property. UK-based investors are very much in the thick of it!
Yes, there can be large regional variations. Yes, the markets in London will inevitably have an influencing factor on the performance of the regions, and occupational demand from tenants may wane. But, if you can source a good quality building let to a strong covenant, with a decent lease length remaining, then the potential return and security could be very attractive.
I regularly see financial advisers recommending that commercial property investments should be part of a balanced portfolio.
Many investors will see a proportion of their investment pot invested in commercial property funds overall rather than direct investment in a specific property (either solely or as part of a syndicated investment) as their overall fund may not be big enough to buy a property outright.
However, if you are fortunate to have sufficient cash resources (lending criteria is quite different from the housing sector) or have SIPP or SSAS funds - or both - or own a company that requires a commercial property to trade from, then investing locally, or in the property you occupy, can be a lucrative move.
It's interesting that a lot of the big city advisors can't see beyond the large circle of the M25. To be fair, big trophy assets are mostly located in London with several of the top 10 cities having a share.
As a result, there is an assumption that the yield on commercial property for most other locations in the UK must, therefore, be higher - perhaps because the perceived rental growth and demand for the buildings will be less?
In any event, locally (perhaps with the exception of Cambridge) it is quite common to see office and industrial property returns hitting anywhere from 7-9% for half decent quality kit.
If you have cash assets in a pension scheme and can buy something that hits an average of 8% per annum (with around 10 years left on a lease) that means, in extremely simple terms, you are recovering 80% of the capital value.
OK, you have risks of voids and empty rates costs (I remain an avid protester against this) but even if capital values fell 20-30% you would still be getting a decent rate of return compared to cash in the bank, or even bonds - and without the worry of a fluctuating stock market.
If there are prospects for rental and capital growth for your business, then even better. If you buy the property you occupy, rent the building to your company and hold the asset in your pension, it's a no-brainer - after all, you should know the covenant strength of your own business!
Locally, we have recently been instructed on a number of office investments and developments and have seen an increase in demand within the last 2-3 weeks, especially. Several are even being sold at, or in excess of, asking prices - all from local and regional buyers.
Whether you would like to discuss any investment opportunities including commercial property, or if you would like to sell or simply need advice in acquiring property, feel free to call one of the Barker Storey Matthews offices and we will be happy to help you.