Commercial Property News
According to the Investment Management association, sales of ISAs are at record levels with the commercial property sector proving most popular ( October 2009). The past few years have seen some woeful returns from this sector but as reported before, many believe that the bottom of the market has been reached and investors are returning with renewed appetites. According to the Investment Management Association, the property sector was the highest selling sector in October 2009, accounting for £367.6 million of net retail sales, this is the highest since May 2007. The demand for commercial building has coincided with an upturn in performance and British commercial property seems to be coming back in to fashion. Although prices are increasing slightly, they are now more realistic, gone are in the inflated values of a few years ago, the outlook is now slow and sustained. Whilst money is pouring in to funds, many fund managers are also being cautious, waiting to invest at the right moment. There is also a lot of interest from abroad, for good quality sites and the current weakness of sterling is adding to this.
However, the fact that prices have increased ever so slightly, does not necessarily signal a green light for this sector, 2010 could prove to be a volatile year for commercial property, the United Kingdom is barely out of recession, there is also the looming threat of distressed property sales from banks and lenders which over provided on UK commercial mortgages during the market’s boom years but now be nursing a mountain of bad debt. If this property starts to creep on the market, prices could start to fall again.
With mixed messages being received, it is probably best to proceed with caution if deciding that now is the time to make a commercial property investment. There are two routes in to this market. Firstly, you can buy units in a fund that specialises in commercial property and leave the running of the portfolio to the fund manager, secondly, as many buy to landlords have done, you can purchase commercial property outright, although this will take a good deal of managing especially if you are inexperienced in this sector. Smaller commercial properties are more popular for this, with small office blocks and retail shops being the usual choice. If you do buy your own commercial property, you will need to purchase commercial building insurance and nowadays, this is relatively easy to obtain. Other factors to take in to consideration are that commercial property insurance is more expensive than residential buy to let cover, with the occupation of the building being one of the major factors in deciding the premium. Many buy to let landlords have experimented with a commercial property in their portfolio but have been off f from acquiring more property because of the poor returns seen on valuations.
If you do decide to acquire commercial property, because of the effects of the recession, obtaining a good quality long term tenant may be harder to locate than normal. Remember, a trip down most high streets will reveal many unoccupied shops. Even obtaining the freehold of a building with a long established tenancy can be problematic, so many business have hit financial hardship that much research is needed before a venture in to this market.