Have you wondered about investing in commercial during a recession? In the UK, commercial property funds earned about 18 per cent a year from 2004 to 2007.
However, in 2008 the bubble burst and property values plummeted by 26.4 per cent with many people opting for sell and rent back arrangements. In April 2009, UK commercial property rental values dropped to the lowest level since December, 1992. However, there are experts who believe a prudent investor can make money in commercial property even during the deepest recession.
First let’s review what happened during this recession that drove property values downward. Most analysts agree that a collapse in the housing market triggered a corresponding meltdown in equities across the world. The financial tremors caused a “credit crunch,” in which lenders were unable or unwilling to loan money. The restricted borrowing environment sharply curbed the number of new businesses that could start up, and hampered existing businesses from maintaining or expanding operations.
Sell House Fast, 0800-1313007, Bury Lane, Rickmansworth WD3 1DS, UK
Businesses began laying off workers especially in the financial, construction and manufacturing sectors. This triggered a crash in consumer spending creating a vicious downward cycle. Companies were no longer looking for new commercial property to open or expand their businesses. Instead, both businesses and investors were dumping commercial properties saturating the market and driving prices downward.
However, it is these low prices in commercial property that offer opportunity to the investor savvy enough to find them. Additionally even if the commercial property market is depressed nationwide, there can be regional markets where the situation is favorable and with attractive yields from solid covenants these fringe areas are where deals can be found.
At some point, every recession bottoms out and commercial property values will begin to rise again. The strategy is to acquire property that will provide returns when the investor requires them. These returns could come through various means including the eventual sale of the property or through a steady dividend income from the property. Many people are currently looking to sell property quickly which makes this an ideal time to invest.
Another problem the investor may have to deal with is obtaining capital. In the current environment, loan terms are generally unfavorable to the borrower and such factors have to be carefully studied to ensure one still comes out ahead.
For many individuals and small companies, an investment will be too expensive or too risky, so collective investments are chosen instead, along with rent to buy.
These collective instruments include commercial property funds, commercial property equities, Real Estate Investment Trusts (REITS), and other property investment trusts.
A REIT is an investment managed by an asset management company that pays shareholders at least 90 per cent of annual income to investors. These types of investments are flexible and many of the investment trusts have long histories. Fortunately for the investor, many collective property investors are sharply discounting to avoid going out of business.
Navigating the sell house fast market is not for beginners and the best approach is to use a professional property consultant. A consulting firm will have expertise and experience in acquiring and disposing of commercial estates.
Commercial estate agents are familiar with the current market and with prevailing trends. A consultant can analyse your needs and match you with opportunities that best fit with your requirements. A good commercial estate agency will provide you with references of successful clients whose situation most closely resembles your own.
David Mirelman is an expert in Commercial Property in London, as well as investment property.
