Commercial Building News
Commercial building prices peaked in 2007 and since this time, valuations have retreated by as much as 40%. However, many people now believe that the bottom of the market has now been reached, recent reports have indicated the smallest drop in value for nearly 2 years, prompting some to think that now is a good time to buy, but is it?
The indicators are still conflicting, if anything, things are not as bad as they were, but that doesn't necessarily mean that valuations and demand are shortly going to do an about turn. Like most markets, there are levels of support and resistance and the sales that are going through at the moment may not be sustained if the markets heats up too quickly again.
Some Surveyors are starting to report that confidence in the UK commercial building market is growing as the fall in tenant demand for offices and shops has started to slow. Whilst actual demand for commercial building still fell in the second quarter of 2009, the Royal Institution of Chartered Surveyors state that the pace of decline has slowed quite dramatically and whilst new enquiries were still low, they were at their least negative since late 2007.
It is also reported that the number of distressed commercial properties coming to the market rose in every region in the world in the second quarter, with the UK in particular seeing a rise in interest in building sold by owners experiencing problems. There have also been recent reports that some high street banks are selling distressed commercial buildings, that lenders have defaulted on, to their own subsidiary companies in the hope that a recovery in the commercial property market will enable them to recoup their losses. Traditionally, banks sell property on the open market, this practice, (which was popular with banks towards the end of the last recession in the 1990s) enables them to avoid selling distressed assets that have dropped in value to an outside buyer. Whilst it may be prudent to wait until the indicators become stronger, there are definite signs of life from some investors.
Some pension companies that allow policyholders to include commercial property within their plan are reporting an increasing interest in the acquisition of this type of investment. Many owners of shops etc, who previously perhaps found their own business buildings too expensive to purchase, are now considering buying the property via their pension plan because the prices are now more affordable. Commercial Property may be held via a SIPP. (Self-invested personal pensions) these type of pensions offer far greater flexibility than ordinary personal and occupational pensions because you can have many types of investment in them. Most of the people who buy a commercial property through their Sipp are looking to hold the property in their business in a more tax-efficient way. This has become popular among professionals such as dentists, doctors, solicitors etc, who may have an office or commercial buildings. Holding property in a Sipp means the rental income is paid into the pension free of tax. Any growth from the rental income or value of the property also builds up tax free. However, it must be remembered that he property becomes an asset of the pension fund and hence the value of it will be used to provide retirement benefits for you.
The recession has hit the commercial property market hard and the credit crunch has severely dented the start up of new business needing commercial buildings or established companies moving to larger premises. Landlords of commercial buildings have been particularly hard hit with demand from new tenants drying up and many existing tenants trying to negotiate new improved deals paying a lower rent. No one can truly believe that an upturn is on the way in the immediate future and if and when it does arrive, growth is likely to be slower, markets will remain cautious. However, many business owners and property investors are beginning to cast a glance at commercial property as prices are very low , if you can afford to get in at this level and are prepared to hold on to the property for a while, you may obtain some good, solid investments.