Commercial Property – the new investment opportunity

The buy-to-let property market has come in for some heavy stick in recent months, with all kinds of negative predictions for the near future. This has been true for the housing market as a whole of course, with the Hometrack survey this week setting alarm bells ringing by showing a 0.1 per cent fall in prices.

Nationwide’s revelation two days later that October house prices actually climbed by 1.1 per cent provided a rather more upbeat picture, even if the building society’s chief economist Fionnuala Earley said this was “unlikely” to be the start of a major upturn.

Of course, there are nonetheless other property investment options for those who don’t want to go into buy-to-let, particularly commercial property. While predictions for growth in the housing market vary, the economy as a whole is still performing well. Charles Bean, a member of the Bank of England’s monetary policy committee (MPC), told an audience in the City of London this week: “So far, there’s not a lot of evidence of a UK slowdown”.

While Mr Bean was at pains to emphasise this meant the MPC had to keep a careful watch on inflation, the continued strong economy may help make commercial property a highly viable investment.

Now is certainly a good time to do so, according to Matt Staines, managing director of First Property Asset Management. Writing in, he said there were many favourable aspects of such an investment. For one, he noted, commercial leases were tied in for long periods, usually for years, guaranteeing returns. There are also possible tax breaks from capital gains tax and similar if investment is done by means such as self invested personal pensions (known as Sipps, he commented.

“What’s more, the demand is there, particularly if you choose your investment carefully,” stated Mr Staines.

One area where such investment may be able to benefit from strong demand at present is within the M25. Research by Savills has shown that this is a landlords’ market, with rents going up as supply struggles to meet demand, reported. In all, 3.4 million Sq M had been rented out in the region in the first three quarters of this year, the highest figures since 2001.

In particular, Savills said, the western side of the area was suffering a paucity of supply, with regional office agency team director Jonathan Gardiner stating: “In order to secure quality product in good towns, tenants are limited in their ability to negotiate on price or incentives and landlords remain in a strong position.”

Thus whatever the fortunes of various kinds of investments, it would appear there are some very strong opportunities in the UK commercial property market at the present time.