Commercial Property Market Has Fundamentally Changed

The commercial property market has fundamentally changed for at least the short to medium term, according to Kames Capital’s head of property investment, Phil Clark.

Clark, who is also currently the chair of the Investment Property Forum, believes the economic uncertainty in the eurozone and a plethora of new or forthcoming regulation have caused a fundamental shift in the short to medium term.

This uncertainty has led to many investors lacking the confidence to invest in anything but the best commercial premises in London and the South-East, to the detriment of the rest of the UK market. However, he believes there are still plenty of good opportunities offering good potential returns.

Clark suggests that over the past year investors could be forgiven for struggling to be certain about where to invest in UK property.

But he thinks that, given the severity of falls in UK commercial property values in 2008-09, they should not lose sight of the positive 8.1% 12 month return from UK commercial property market or that the volume of commercial property transactions in 2011 were in line with the historic annual average of around £30bn.

Clark says:

“Last year the UK commercial property market started with some signs of renewed optimism but in truth by the mid-year the only question on our minds was whether the Euro would survive, and if not, what impact would that have on the UK, commercial property values and our industry.

“It is still not clear what the future of the Euro will be although it seems increasingly likely to involve some members leaving the eurozone.

“However, the problems arising out of the exuberance of the last economic cycle are now giving rise to the opportunities in the next, as banks continue to deleverage their exposure to UK commercial property and more experienced investors look to buy commercial property investments outside of London and the South East.

“Furthermore, some institutional investors are starting to see the compelling opportunity to take the place of banks in lending to good quality properties and experienced property investors.

“There are also substantial opportunities to secure attractive income returns, often let on index-linked long leases, from ‘alternative’ property sectors such as sale and leasebacks. ground rents, healthcare, ground rents, student accommodation to name a few.”

Source: My Introducer