The pandemic has caused widespread panic among investors, and the atmosphere of uncertainty shows no sign of abating. However, it seems likely that commercial property will maintain its value, which makes it a good option, especially while the market recovers from the impact of COVID.
Commercial property – the benefits of investment
Commercial property is often regarded as one of the more reliable forms of investment. Unlike shares or bonds, commercial premises tend to generate good income in the form of rental yield, not to mention capital growth over time.
This is particularly the case with certain sectors, such as industrial or offices. Also, at times like these, it’s less risky to have money invested in a physical asset, rather than high-risk stocks and shares.
What about the impact of COVID on the market?
The pandemic has had an impact on most businesses in the UK. High street retailers have borne the brunt of the blow, thanks to national and regional lockdowns. Office premises have also been affected, due to so many employees being encouraged to work from home.
Hospitality, travel, entertainment and leisure are other key industries that haven’t fared well this year. While this is deeply problematic for companies operating in these sectors, it’s likely to be less of an issue for commercial property owners, especially those who are focused on the long-term future.
Weathering the pandemic, and emerging the other side?
Some businesses are struggling in the wake of COVID. A few tenants are requesting rent reviews, and are unable to meet their rental payments. This in turn puts pressure on landlords, especially as the new legal ruling states that they can’t immediately challenge the situation.
Most landlords are focusing on the bigger picture. For example, renegotiating rent for a limited period of time, may be the way forward. It’s more beneficial to have a tenant in situ than for the property to stand vacant.
This approach also nurtures the landlord / tenant relationship; something that’s advantageous, as the business owner is more likely to retain the premises in the coming years.
Yields are still high and business is still proceeding
Despite the pandemic, commercial rental yields are still high. For example, an average government bond would generate 1%, while yields from a prime commercial property are around 5% for an office, and 4.5% for industrial premises.
Also, it’s vital to remember that many businesses are weathering the storm fairly well. Savvy companies are adapting their practices – to use an example, the UK has seen an explosion in the number of restaurants now offering a take-away service.
The data proves that there’s no cause for alarm for commercial property investors. In fact, the vital signs are largely positive, and look set to remain so after COVID.
Why commercial premises will survive
There’s been some speculation about the ‘death of the high street’ in recent years – this was even before the pandemic struck. However, retailers are showing real versatility; with many evolving to meet the new needs of their customers.
Likewise, the requirement for an office is unlikely to disappear. It’s probable that employees may work from home more often in the future, but there will always be a requirement for a central location where workers can congregate and collaborate. Also, offices have technology and facilities that simply aren’t available in the average employee’s house.
Changing class type
Additionally, the government has now made it easier for commercial properties to change their class type. This means its simpler for businesses to change their operations and be less likely to go under.
There may be a need to adapt premises to accommodate this changing commercial landscape. However, most experts agree that, if landlords are flexible and supportive of their tenants, there is still plenty of profit to be made.
Looking to the future
Property investment is perfect as an asset for longer-term funds. It provides the investor with good growth in income over time, and a stable capital value, which hasn’t been much impacted by COVID. A property portfolio, with investments in a variety of different sectors, may be even more beneficial; as if one underperforms, the others are likely to compensate for the deficit.
Ultimately, only time will tell exactly how long the COVID situation will last for, and what effect it will have on the commercial property market in the long run. However, at present, this sector has retained its value far more than other forms of investment, and this doesn’t look likely to change any time soon.
If you’re a commercial property investor or are looking to invest, get in touch with the RIB team today who’ll be happy to provide further advice on the points raised above.
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