Latest Trends in Property Investment

07/08/2007

Since the steady increase of interest rates over the last eighteen months the commercial property investment market is now starting to show the strains with secondary investments, beginning to show signs of price reductions. “The sort of multipliers of rental income which were being achieved a few months ago are no longer the case and auctions are seeing a reduced success rate with properties now having to be more realistically priced”, says Mark Bunting, group director of Aitchison Raffety.

“The reason for this is fairly simple in that the majority of property investment purchases rely on borrowing and if the cost of borrowing is increased then a reduced amount can be borrowed for a given rental income. All this was fairly predictable and one of the most worrying trends over the last few years is that secondary or even tertiary stock was showing inadequate differences in value compared with prime, despite often a much greater risk” explains Bunting.

The fundamental criteria of property investment remain the same which are security of income and scope for rental growth. Security of income can be obtained either by buying a property with a long lease to a strong tenant or alternatively a property which is highly lettable in any market. Scope for rental growth is dependant upon a number of factors including supply, the general economy and in particular the strength of the economy in the chosen sector; for example consumer spending for retail properties.

Two factors are normally prevalent in the minds of investors, the yield, and the capital growth. The yield is simply the rent which is being achieved which ideally will increase over time although this is not guaranteed and many commercial property sectors have

shown relatively little or no growth over the last few years. For example office rents are still not back to the levels that were achieved in the late 1980’s. The other factor is capital growth which in terms of commercial property tends to be affected by rental growth and yields.

“Notwithstanding current problems, interest rates are likely to stabilise within the next few months, and against a background of an extremely hot market where purchasing property at anything approaching a sensible price has proven very difficult, the forthcoming few months should see a more balanced market with more choice for the property investor” concludes Bunting.

For further information and general advice on commercial property contact us.

Issued by: Jane Whigham
Aitchison Raffety tel: 01442 220800
e/m jane.whigham@argroup.co.uk