LONDONDiversify Your Portfolio: Could You Make Your Living Off a Tescos?

No longer the preserve of investment funds, commercial property provides new and secure opportunities in a changing market for pensioners and entrepreneurs alike. Here's how...

LONDON

Diversify Your Portfolio: Could You Make Your Living Off a Tescos?

No longer the preserve of investment funds, commercial property provides new and secure opportunities in a changing market for pensioners and entrepreneurs alike. Here's how...

Commercial retail investments in London - Oliver Beale Credit

2016 has been an interesting year for property investors. With the uncertainty caused by Brexit and the new tax on buy-to-let and second home properties, London’s property market has slowed for the first time in decades. While prices are still expected to increase around 11% average in the coming 5 years, the meteoric rise seen in the Nineties and Noughties seems to have paused. Some would say that this is no bad thing.  First time buyers may finally have a breather, helped along by Sadiq Khan’s pledge to create new affordable housing and Help-to-Buy schemes connected to some of the city’s leading new developments in regenerated areas like Elephant & Castle. In the after-math of the global financial crisis, the buy-to-let lending market was one of the few to grow, with both banks and individuals making the most of low interest rates and attractive mortgages. However, when the new government tax introduced a new 3% rise on stamp duty in April, buy-to-let and second homes become a much more expensive prospect.

So where should investors look?

While traditionally the preserve of investment funds, commercial property is becoming increasingly attractive to family offices and private individuals looking for a clever way to invest that will guarantee secure and significant returns. Rather than the big scale commercial projects, its smaller commercial retail properties that are proving to be amongst the most profitable and popular, with an increased demand from pension funds looking to buy smaller assets and overseas investors capitalizing on currency swings in favor of USD and EUR buyers.

According to Richard Lightwing, Athena Advisers’ London expert, investing in commercial property is no longer the sole preserve of investment funds. “London has done so well in the past decade as it was seen as a safe haven for investment.  But now, banks offer 0.25% on money held, while pensions give just a 2% return, so it doesn’t make much sense to leave your money there.  You can draw out pensions when you are 55, so the question is, what to do with it and how to make the money work for you? It may sound funny at first, but you can put your capital in your local Tesco Metro and spend the rest of your life on holiday.”

While investments start at the 1.5 million mark, with an average yield of 4-4.5% per annum spread over 15 to 20 years. That means that for an investment of 1.5 million, you would be looking to bank £67,500 a year over a 15 year period. ‘The client tends to come to us with a budget – usually it’s family offices or wealthy private investors, and we source the right property. The more capital you have, the better the deal can be. We recently did a deal on a restaurant and office space in Soho where the investment was 14.5 million and the pay-out £600,000 a year for 25 years. Deals are based on a 60-70% loan to value rate, with a 2.5% interest rates, so it really begins to make sense for cash buyers.”

The key to a secure investment is working with blue-chip tenants with long-term investment plans of 15 years and above, and only engaging in agreements where the tenants are already fixed in place.‘These sort of assets are very liquid’, explains Richard, ‘they offer a hedge against inflation, while strong leasing structures work in the land-lords so the tenant can’t get out. There is limited stock for his type of property, so the return on investment is good and there is a high demand.’ Commercial retail follows market trends, so alongside supermarkets, there is a growing demand for warehouse hubs for online businesses like Asos, Amazon and Net-a-Porter, as well as care-homes and Royal Mail depots. Just don’t get stuck on location: while international investors are drawn to London for its global kudos and familiarity, the smart tip is to explore opportunities outside London, such as commercial retail properties in places like Manchester and Birmingham where the market is yet to heat up. Supermarkets may not be the sexiest of investments, but you can always be sure that people will need to eat.

pensions and entrepreneurs alike find retail commercial investments for sale -
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