Property Investment Opportunities

Posted by The Landsite on 3rd February 2023 -

The ultimate aim of property investment is to generate an income, and therefore a return on investment (ROI).  This ROI is usually from landlords creating a stream of regular rental payments or by selling it once it has grown in value.

Buy-to-let

A residential buy-to-let property is seen by many as a reliable investment.  For now, affordability and availability continue to be deciding factors for many opting to rent rather than buy their home. This has pushed up landlord’s yields considerably in the past 18 months.  According to the Office of National Statistics (ONS) average private rental prices paid by tenants in the UK rose by 3.2% in the 12 months to July 2022, up from 3.0% in the 12 months to June 2022.

 It is therefore, of little surprise that a recent survey conducted by insight business consultancy BVA BDRC, showed that 15% of 700 landlords surveyed are considering to buy more buy-to-let properties in the next 12 months seeing it as a sound investment.  It suggests that over half of property investors who are reviewing their growth strategies are planning to invest through a limited company.

However, landlords cannot rest on their laurels, with increasing cost increase pressure from a variety of fronts.  The most recent discussions surround energy performance as properties need to comply with an ever increasing number of energy performance amendments in order to be ready to enter the rental market. For instance, in 2020 the UK Energy White Paper was released, laying out regulations which explicitly require all rented non-domestic buildings to achieve an Energy Performance Certificate rating of B by 2030.  This has been driven in a large part to a response to the current climate crisis and will not only affect new buildings and lets, but also applies to existing ones. Furthermore, from 1 April 2023, a landlord cannot continue with a current let if their property has an EPC rating of lower than E. 

Since covid, tenants are proving to be more discerning in their hunt for a place to live.  To deliver on their aspirations landlords need to factor in maintenance and upkeep costs and as has been widely broadcast across the construction industry, building work has come under immense pressure by limited labour supply and the rising costs of materials. By the end of September 2021, for instance, steel prices had increased over 70% year on year,  according to the ONS. 

Commercial property

There is an unease that the high street will become an echoing world of empty shops and commercial premises,  according to the RICS who report concerns that many built assets could become stranded through lack of demand.  

However, a recent report by Deloitte offers optimism, believing that the high street is ideally placed to reinvent itself in response to the structural shift in working and shopping patterns that has resulted from the Covid-19 pandemic.  The retail sector has been in decline since the crash of 2008 and the emergence on online retailing.  The report suggests that since 2010, nearly1,400 retailers entered administration struggling with the impact of the internet.  The decline is continuing and more shops have been closing than opening, with a further 30,000 net physical store closures projected between late 2020 through to the end of 2022.  On a positive note Deloitte adds, while all retail locations are struggling with growing vacancy rates, the high street has shown remarkable resilience with the current vacancy rate of 12.5%, broadly the same as in 2013.  This suggests that new openings must have been largely keeping pace with closures and supports the view that while the high street struggles, it is also capable of constant reinvention. 

Thankfully there are investors and developers out there taking note and working with local councils and stakeholders to create new schemes to bring life back into the towns.  Town centres are being rejuvenated to create local communities around shopping centres. This opens up opportunity for buy-to-let investors, while also creating the much needed trade for localised commercial premises as residential communities support local retailers. 

Yet still some commercial property investors remain cautious of the high street, and there is a trend and indeed huge potential for investment out of town. Online retailers and service providers still need premises, and hence there is buoyant market for investment within the industrial sector.  For instance, a dramatic surge in the use of digital services over the past two years means that the demand for logistic centres, warehousing and data centres is huge, creating opportunities for investment in industrial estates.  

It’s a trend that has been observed by Jamie Pritchard, Director of Sales at Glenhawk, which offers short term property finance solutions. “Industrial has continued to thrive post pandemic, driven by both strong rental growth and an increase in demand. Industrial covers a multitude of building types from flex buildings (office space and storage) to large logistic sites. Similar to warehousing, the pandemic changed how the consumer operates and the diversion from people able to purchase from the high street to online increased the demand on business able to flex to the new habits – all of this resulting in both industrial and warehousing being a more favourable commercial asset class for investors,” he says.

There is huge demand for property investors right now, whether within the buy-to-let market or within industrial space.  

As long as due diligence is undertaken before committing to any financial obligation, property continues to be projected as a sound long term investment.

---

Search for commercial real estate listings 

Read more articles in TLS Insights magazine - Your #1 source for real estate trends, data and insight.