Challenges and Opportunities
Jonathan Ling of Stratton Creber Commercial comments on the current challenges and opportunities for those looking to invest in property
Challenges and OpportunitiesJonathan Ling of Stratton Creber Commercial comments on the current challenges and opportunities for those looking to invest in property
For the private investor, the property investment market is looking like a bleaker place than it did five years ago, with many potential risks and pitfalls. However, for the prudent and well-advised investor, there may be lucrative opportunities coming available in the current market. The most obvious change in the property market since the heady days of 2007 is the difficulty in finding a tenant, especially one with a strong trading history. The next challenge for a landlord with vacant property is to negotiate favourable lease terms; lease lengths have declined, tenants’ break clauses have become increasingly accepted, while at the same time rents have declined and the extent of financial incentives being offered to new tenants has increased. The other major change in the property market has been the increased costs to landlords of holding vacant property. With the exception of Listed buildings, business rates are payable on all commercial property after an initial rates-free holiday, meaning that the cost of not doing a deal is not just the cost of lost income, but also the actual pain of writing out cheques to the local authority whilst seeking a suitable tenant. If this all sounds too bleak for you to contemplate a foray into commercial property, you should take comfort from the fact that these market conditions affect all potential buyers of commercial property equally. The result is not a dead or dying property investment market, but simply one in which the stakes are higher than they once were, and where prices are more affordable. Five years ago it was possible to make a badly informed purchase and still come out smelling of roses; now, it is more important than ever to be in full possession of the facts, have a good understanding of the local property market, and seek professional advice from the right people. With increased legislation also making property management more intensive, the role of a managing agent is also becoming more important. A managing agent can run the landlord’s services (such as insurance, repairs and utilities), administer the service charge budget, and deal with rent collection. With these practical issues taken care of, commercial property becomes a financial asset just like any other.Property prices are well down on their highs of five years ago, and investment returns now compare very well against the more traditional forms of investment such as gilts, bonds or the building society! As a guide, yields now range between 6% and 10%. For the cautious and well-informed investor this can create opportunities for strong returns in the medium to long term. The key is to make wise purchases now, before prices inevitably harden.
