Commercial property


P

Pollux

I'm by far not an expert in propery and I base most of my opinions on
what I can see. I live in the Reading area and while the housing
properties still looks robust enough, the commercial properties market
looks pretty dire. There are offices available everywhere. The centre is
awash with empty commercial buildings. The business parks built in the
outskirts seem to be doing hardly better.

With the general consensus being that commercial property is safer and
the introduction of REITs in the UK, I get the impression we'll see a
commercial property crash before we see a housing one.

Is it the case in other areas?
 
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Pollux said:
I'm by far not an expert in propery and I base most of my opinions on
what I can see. I live in the Reading area and while the housing
properties still looks robust enough, the commercial properties market
looks pretty dire. There are offices available everywhere. The centre is
awash with empty commercial buildings. The business parks built in the
outskirts seem to be doing hardly better.

With the general consensus being that commercial property is safer and
the introduction of REITs in the UK, I get the impression we'll see a
commercial property crash before we see a housing one.

Is it the case in other areas?
You have already seen a commercial property crash in your area. That's
why there is so much empty space. Reading has never recovered from the
dotcom crash.

But other areas have also suffered from decline. Even City of London
rents have declined around 30% over the last couple of years.

This is a rental value crash, however, NOT an investment slump. Empty
buildings are hard to sell but tenanted ones are like gold dust -
particularly those with good tenants and long leases.

It may sound idiotic for investors to be rushing into a market where
returns are falling but they have nowhere else to spend a vast amount of
surplus wealth generated by a buoyant economy.

They are disillusioned with equities, suspicious of pension-based
saving and aware that residential property is near or at the top. So
they are rushing into commercial property.

That herd comprises small pension funds, wealthy private investors,
overseas investors, hedge funds, opportunity funds and finance boutiques
involved in off-shore trusts. Property unit trusts have hit £15bn and
private equity investment reached £4bn last year.

Yields have crashed. An Irish syndicate recently outbid US and Middle
east heavyweights for a West End estate, paying hundreds of millions in
return for a sub-4% return. The logic is that capital values will keep
rising - and they have so far. Total returns [capital valuer plus rent]
have soared despite falling average rents.

Be afraid. Be very afraid.
 

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