An increasing amount of financial advisors are recommending that their clients consider looking into commercial real estate investment opportunities compared with residential property, according to a survey commissioned by Reita, the education and awareness campaign for quoted property and REITs.
According to the results of the survey, 66 per cent of financial professionals believe that commercial property prices will rise in the coming year, compared to 39 per cent who believe that residential property is the way forward.
When it comes to investing in property most individuals are immediately drawn to the residential market, but as the recent survey shows, there can be advantages to buying into commercial real estate as well.
Investing in Offices
For many the opportunity to own large, high-quality commercial properties, such as shopping centres, office blocks or large industrial premises, is out of reach, with the potential for prices to run into hundreds of millions of pounds. However, there are a number of collective investment schemes
such as REITs that facilitate access into the industry.
Commercial property investment tends to favour the long-term buyer, because unlike its residential counterpart leases tend to be arranged on a larger scale - anything from three to 20 years - and, as they are generally backed by bank guarantees, are a fairly secure investment option.
The practice is also a lot less hands-on than its opposite number, as property is maintained by the tenants and because it is used for business purposes, it tends to be well looked after. It is therefore a lot easier to invest a large sum of money in commercial property.
In terms of potential returns, investors can expect net gains of between seven and ten per cent of invested capital.
However, it is important to note that the rate of return on commercial property is not as predictable as it is on residential assets. Furthermore, because of the differing and unique nature of many commercial properties, it can be difficult to accurately value them without professional advice.
The Future of Property Investment?
The results of the Reita survey suggest that many financial advisors are sceptical about the recent price rises witnessed in the UK market. And with the threat of capital gains tax rises, it may be that investors and their advisors start looking for more secure places to leave their money.
Knowing the real estate market
will help to make the right decision as to which type of property you should invest in. Researching the property you are interested in, as well as the market, is the best way to make an informed decision and a safer investment.
- Tuesday 01 June 2010