If you are waiting for an opportunity to grab commercial properties at bargain prices, now may be a good time to consider doing so, with the prices declining due to decreasing tenant demands and even fewer new buyer enquiries.
The situation looks gloomy as the demand for the retail sector has plummeted at the fastest pace within the last six year period, due to the recent credit turmoil and the consequent effect on the housing market. A recent Royal Institution of Chartered Surveyors (RICS) survey revealed that new buyer enquiries for all property sectors have also declined, with the retail sector experiencing the sharpest reduction in enquiry levels. This is especially so for retail properties in Central London and Wales. The survey also revealed that surveyors’ confidence in the office and retail sectors have dropped to its lowest since 2003.
As for rental expectations, these turned negative for the first time in four years while investments into commercial properties also slowed due to the credit crunch. The net balance of capital values in the office and retail sectors reportedly fell between 20% and 30%. Team that with less availability of capital funding, many investors are holding back from purchasing any commercial property. That includes the office sector which had remained buoyant previously before it joined the retail sector by taking the escalator down recently.
Reading through the various reporting sources, the outlook is indeed looking pretty bleak, especially as surveyors expect this situation to continue for sometime. In other words, commercial property prices are yet to hit rock bottom and so, prices will continue to fall. This may seem a bad sign for those looking to sell or trying to rent out these properties during this period.
However, to many a savvy investor, the gloomy figures are a potential indicator to purchase as many commercial assets as possible at bargain prices. Every cloud has a silver lining. Previously expensive commercial properties will now be priced much lower and if you have the resources, expertise and funds, it may be a good time to invest in UK commercial properties, be it in the retail office or other commercial sector. However, keep watching the market, there is still some time before the market is set to bottom out.
The future outlook for this sector may be depressed for now but when we talk about spending hundreds of thousands or even several millions on an asset, it means you are likely to be committed at least for several years. So, if the market is bad now, get the properties now because it is at below market value. With the assets in hand, you will definitely get into position to realise a nice profit once the market goes back up, perhaps after six months or a year or several years. It depends on your investment strategy of course but investments need not bring immediate substantial returns. In time, tenant demand and new buyer enquiries will increase and that is the time that investors, who have cleverly grabbed this golden opportunity now, will reap their rewards.
In conclusion, investments into commercial properties during this slowdown is worth it in the medium to long term. However, make sure you get good professional advice and a good commercial mortgage source so that you do all the due diligence necessary to be as sure as you can of a sizeable return in future. Let me know how you get on