Commercial property is once again catching the eye of the City, which sees it as an attractive investment proposition. That’s the message coming from the Daily Telegraph, which highlights the sector’s newly publicised outing, made while dressed in a slinky new number; 13.5 is the percentage increase in property prices that the Investment Property Databank UK index has reported, in the year to May. This compares to the index between June 2007 and July 2009, when commercial property prices suffered an unsightly sag of 45%. Capital growth was 0.1% and total return at all property levels was 0.7%, with 0.6% of this income based.
The Telegraph breaks down funder fondness for commercial property investment into three separate groups. Some go for the physical allure, when funds are invested entirely in property such as shopping centres or offices. Others prefer a bit of variety, opting for a mix of physical property and shares in property companies. The third group has a taste for putting money solely in property shares, seen as a risk due to the volatility and liquidity offered by share transactions over physical property.
The tone of the report encourages a long-haul approach to investment, closing with an observation from John Kelly of Chelsea Financial Services: ‘The average yield in the commercial property market in the UK is rising – now standing at approximately 6.5 per cent. Even when you take away inflation, currently 3.4 per cent, commercial property is still yielding 3.1 per cent.’ The endorsement comes with a caveat, in the form of the government’s recent budget. Higher capital gains tax and the VAT increase may lead to ‘more distress in commercial property as tenants come under increasing pressure.’ Key attributes of investment are seen as ‘a long-term game with yield, diversification and the potential for capital growth’.
