Are Property Investments still Outperforming Bonds?

Whilst recent times have seen both the triggering of Article 50 to take us out of the EU, and a rather uncertain General Election, the markets are now adjusting to the slightly different times we find ourselves in.

It seems that interest rates will stay low for a while yet, and that has encouraged investors to look to commercial property in the UK for a steady and reliable yield. Over the last 17 years, we have seen income make up the majority of the return enjoyed by investors.

The Political Landscape

Thanks to equity markets reaching all time highs, investors can enjoy and important diversification through property. The UK commercial property market in particular is in a strong position due to its low vacancy rates. Brexit has meant that development in and around London has largely stalled. However, the lead times required for the planning process in The City has meant that this is one area which continues to develop, as much of the work going on now was started before the Brexit referendum was even announced.

After the result a hung parliament in the 2017 General Election, you would be forgiven for thinking that the property market would nosedive. However, this seems not to be the case, as valuations are up across all property sectors.

The Property Investment Market

One thing that has been hit recently is the pound, and its weakness has only served to make the UK property investment market even more appealing to those abroad. The Walkie Talkie skyscraper that dominates much of the London landscape was sold for a record £1.3 billion just a month after the election. This purchase by Hong Kong investors was a great boost to market confidence, and the UK as a whole is continuing to evolve despite Brexit uncertainties.

With low vacancy rates, the demand for property is high. Many investors built up their cash reserves before the election, unsure of what the future may hold, and now tenants are being equally as cautious by opting for smaller properties. These smaller occupiers have a tendency to be domestically focused and so have not been affected by Brexit in the way many international businesses might be. With larger property now being harder to rent out, there is a need for investors to select opportunities that meet demand.

Predicted Property Successes

As the UK commercial property market is in such a strong position, those properties located outside of London can offer a promising investment opportunity. The growth in internet shopping has also created a demand for storage and distribution facilities across the country.

Smart investors are moving away from ‘trophy’ assets such as landmarks as they present little opportunity to add value, and as they are let at the highest rates, there is also no room for rental growth. Instead, smart investors are looking to refurbish standing assets such as buy-to-let property investments as a way to add value and achieve a better income growth.

It is also wise to look beyond the typical London areas. Known for its hefty price tags, central London does not always offer the best opportunities, so travelling further afield can work if the right communication links are in place.

Retail parks are also seen as a potentially profitable option as large stores offer products that consumers do not want to buy online.

As retail and industrial sectors grow, Brexit uncertainties have lead to a drop in the office market

All of this means that in a low income environment, investment in the right property will deliver better yields than bonds, whilst still offering a similar level of stability.