INVESTMENT
Savills prime yields comparison
January 2018 December 2018 January 2019
West End offices
3.25%
3.5%
3.5%
City offices
4%
4%
4%
Offices M25
5%
5%
5%
Provincial offices
4.75% 4.75%
4.75%
High street retail
4%
4.5%
4.5%
Shopping centres
4.75% 5.25% 5.25%
Retail warehouse (open A1) Retail warehouse (restricted)
5%
6%
6%
5.25% 6.25% 6.25%
Foodstores (OMR)
4.5%
4.75%
4.75%
Industrial distribution (OMR)
4.5%
4.25% 4.25%
Industrial multi-lets
4.25%
4%
4%
Leisure parks
5%
5.5%
5.5%
Regional hotels
4.5%
4.25% 4.25%
Source: Savills Research
commercial property investments. Large institutions that invest in the sector will often have exposure to multiple areas. Cambridgeshire County Council, for instance, recently snapped up the 986-year leasehold of a Tesco site and industrial land in Peterborough for a combined £63m as part of its ambition to grow income from commercial property from 3% of its budget now to 15%within the next five years. If picking a winner seems overwhelming or the likelihood of raising the necessary finance is a tall order, online property investment marketplaces have made it possible to invest in mortgages. Companies such as Lendinvest allow individuals and institutions to invest in mortgages secured against UK properties. Such websites allow you to create a portfolio of property investments, providing the possibility of accessing several industries at once. Of course, just like more direct investments, the prices of the properties that these mortgages are secured against could fall and economic pressures could also stretch the finances of tenants, making it more likely they might negotiate for rent relief or even default on their lease.
Just like any investment, taking on a commercial property warrants serious consideration – and professional advice too – to help ensure you make the best use of your money. Experts also recommend investors have a well-diversified portfolio, which means a good mix of different asset classes such as equities, bonds, property and alternatives, such as energy. This is because it is less common for these asset classes to move in the same direction (increase/ decrease in value) simultaneously, giving a diverse portfolio a better chance of providing positive returns over the long term. RICS data shows that nationally, 53% of respondents to its survey view the commercial property market as in some stage of a downturn, with fear heightened in London due to Brexit uncertainty. Nonetheless, those in the market are expecting a ‘soft landing’ rather than a full-blown crisis at present, meaning it might be worth doing your homework on property investment.
Just like with a residential property, most individual investors are unlikely to have the necessary spare cash to buy a commercial property outright. This means a mortgage will be needed to complete a transaction. While notionally a residential and commercial mortgage are the same thing, lenders such as banks and building societies are likely to demand a bigger deposit for the latter. According to Cheffins partner Philip Woolner, commercial property borrowers are more likely to be offered two thirds to three quarters of the value of the property as a mortgage, unlike the more common 80 to 90% for residential property transactions. “Commercial property is seen as more of a specialist product and potentially more vulnerable to valuation swings,” he says. “The bank wants to know that you can service the loan.”
The author, Anna Lawlor, is co-founder of Luminescence Communications. Additional reporting by Bradley Gerrard
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ISSUE 04
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