Much has been made of the closing, following the referendum, of the daily traded institutional funds which hold illiquid assets in a very liquid trading format. This structural imbalance may be more the reason for the headlines than the underlying attributes of the properties themselves.
Investing in property has generally been for income and the income return from almost any index is significantly ahead of the FTSE indices be they FTSE 100 or FTSE 250.
The most recent base rate cut to 0.25% combined with very low returns on bond investments in our view makes a compelling case for private investors to hold some property as investment.
Returns vary greatly and certainly the smaller lot sizes are dominated by investments in the commercial sector of roadside users units such as Costa Coffee or Starbucks together with convenience stores. The number of small industrial units is limited as many are owned by their occupiers either through the pension scheme or directly and very few have been built over the last 20 years.
Whilst good returns of near to six per cent initial yields can be achieved, there is little stock available with long leases as this tends to result from development where developers are still short of development finance, as banks (their main source of finance) are generally cautious.
We have been successful in placing such smaller investments with a range of investors and purchasing on a similar basis. The income returns have however fallen by at least 50 basis points and probably more over the last two years in these smaller lot sizes of between £750,000 and £1.25 million.
It still remains however a sector where good yields can be obtained although care should be taken as to the underlying ‘re-lettability’ and reusability should that specific tenant no longer require that particular property format. The old maxim of location, location, location, is probably as true today as ever.
We believe that this trend will continue especially with the eroding benefits on residential buy to let property with the taxation alterations both on STLT and interest tax relief.
Jon Moore and I would be very pleased to discuss any requirements you have in this sector and if you are sceptical about our bullishness regarding activity by private investors then we would suggest that the recent auction results from the main auction houses would bear out our optimism.