According to the Property Data Report, commercial property in the UK has grown in value by an average of 3% each year, which is comfortably ahead of inflation, so does this make it a good time to invest in commercial property?
Commercial property in the UK is valued at £883bn and represents 10% of the net wealth of the country. About £486bn of this total is owned by property investors from both the UK and overseas. Many people believe that property investing is worthwhile. As well as benefiting from the growth in value of commercial property, investors can earn income from rents.
Investors sometimes finance property deals with commercial mortgages and have a wide choice of lenders and commercial mortgage products.
Will growth continue?
Figures from the CBRE In the first quarter of 2018 showed that rental values for commercial properties rose by an average of 0.2% and capital growth averaged 0.4%. While no one can make a definitive forecast about future growth, it is expected that rentals and capital growth will continue to rise.
Provided the property is in the right location and business sector, applying for a commercial mortgage to purchase property is regarded by many financial experts as a sound investment. Brexit, so far, does not appear to have negatively affect commercial property values, though we should keep our eyes peeled for future developments here.
Growth rates vary between sectors. Retail sector capital values decreased by 0.2% which makes investing in retail premises more of a risk. Industrial property capital values increased by 1.8% and the office space sector by 0.5%.
Warehouse property is in high demand due to the growth of online retailing. Confidence in the retail sector has suffered because of a series of collapses by high profile retailers, such as Toys R Us and Maplin.
Profits can be made by purchasing and converting buildings; for example, an industrial unit previously used for manufacturing then converted into a warehouse could add value to the property.
Growth in some areas of the UK is higher than others, which makes it important to check the growth history of a particular region before investing. The retail sector generally is down, but there are some locations where retail property investments perform well.
Many large cities such as London and Manchester have a high demand for office space and this fuels high rent and property prices.
What about interest rates?
The Bank of England decided not to raise interest rates this month, but has not ruled out a rise later in the year. Any rate rises are expected to be small and this will make the cost of commercial mortgages slightly higher. This should not put off investors, as a small increase in mortgage costs is unlikely to threaten the profitability of the commercial property.
After finding property in a good sector in the best location, talk to a commercial mortgage broker here at Ascot Mortgages about financing the deal.