One area of property investment that does not get the attention that it deserves is commercial property investment. There is a lot of interest in commercial property investment, especially after the recent government changes which have constrained the residential buy to let market to a degree.
Commercial Property Market has Improved
Because the level of interest is so high, yields are being driven down according to a specialist in this are Blue Marble Asset Management. They claim that the commercial property investment market has improved in recent times.
Blue Marble produce a quarterly forecast on the UK commercial property investment market. They claim in their spring 2017 forecast that the market for commercial property is proving to be very resilient in spite of economic and political uncertainty. The demand remains strong and the prices have hardened.
Tim Matthews, the Chief Executive of Blue Marble says that there are a lot of unsophisticated investors that are paying really strong prices for commercial property. These private investors are paying these prices because they are expecting a strong yield without considering the impact on the capital value.
This means that before you could expect a 8% or more initial yield on commercial properties, this have been driven down to the 7.5% or even less area. These lower yields are making the capital values of these investments higher than the values of a vacant possession despite the fact that investment income has been contracted for a short term.
Commercial Property in short Supply
The supply of commercial properties is at an all time low. There was a small increase in supply in the first three months of 2017 according to Blue Marble, but a number of the properties coming through are considered to be secondary and tertiary grade.
The Commercial Property Investment Market is Growing
Despite the lack of supply the commercial property investment market was strong at the beginning of the year. Total returns and rental growth was above the trends for the first two months of 2017. The CBRE UK monthly Index showed that the value of all commercial properties had risen by 0.4%. It also showed that rental growth was increased by 0.2% across the board.
The South East recorded the biggest gains and in the office sector Central and Outer London properties had a rental value growth of 0.2% where the rest of the United Kingdom recorded flat figures.
The future of Commercial Property looks Good
These growth trends for the commercial property market are expected to continue for the rest of the year as there is a lot of investment money pouring in from private investors, institutional investors, overseas investors and property companies.
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