Attractive alternative to government bonds and other fixed incomes

Commercial property continues to attract strong demand

17 November 2016
  • Office shot, Cooke & Arkwright

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As an eventful 2016 draws to a close, Cooke & Arkwright’s Investment agency team reports that commercial property is continuing to attract strong demand from investors. The build up to the EU referendum in the summer and the aftermath of the vote produced a climate of uncertainty as the implications of the UK leaving the EU were contemplated. However, the fundamentals of real estate mean that investment in this sector now looks an even more attractive option.

In a period in which interest rates are at a 300-year low - having fallen even further during the summer - and when returns on government bonds are at a similarly low level by historic standards, commercial property investment provides the opportunity to achieve a relatively high, and therefore attractive, income return on their money.  Furthermore, unlike government bonds and other fixed income investments, the income return can increase further as the economy improves and rents increase.

Investors also have the opportunity to undertake asset management in order to increase the value of the property.  This could include refurbishing and re-letting at a higher rent, negotiating a longer lease, re-letting to a strong covenant and redeveloping for an alternative use. Commercial property therefore holds twofold potential for investors to achieve valuable capital return on top of an attractive income flow.

Investment Director Nick Lawley comments, “In addition to the potential to achieve both capital and income return, changes in pension legislation mean that commercial property is becoming an increasingly viable option for private investors looking to invest through their SIPPs. While interest and bond rates remain low, we anticipate continued appetite for properties offering secure income returns and strong residual values.”