Commercial property 'outperforms' in record year: Allsop

Commercial property outperformed shares, bonds and buy-to-let in 2015 and could become even more popular with investors who face the prospect of high taxes and reduced allowances across buy-to-let and pensions.
 
Lots at auction ranged from betting shops and banks to GP surgeries and old office blocks. Properties sold by Allsop generated more than £39m in annual rents producing an average net yield of 6.6 percent, with investors getting an average annual rent for each property of £43,000.
 
The firm’s Commercial Auctions Annual Review comes weeks ahead of tax clampdowns set to hit pensions and residential property investors. Stamp duty increases, mortgage interest relief cuts and a reduction of the lifetime allowance of pensions will mean thousands of people have to find other ways of investing.
 
Shares in the FTSE 100 fell 1.3 percent last year, while the return on UK 5 year gilts was 1.0 percent. Residential yields average around 5.2 percent – although these would be far lower in London. Commercial property returns were significantly higher.
 
Commercial property also offers several advantages over residential property for investors, with commercial leases often being more convenient as the tenant, rather than the owner, typically has to take responsibility for the maintenance and the bills. Commercial properties are also often let to major chains, reducing risk in returns for the owner.
 
Allsop believes these various factors could turn many prospective buyers towards commercial property – with auctions a transparent and direct way to enter the market.
 
Duncan Moir, Commercial Partner and Auctioneer at Allsop, said:
 
“Many properties at auction have low reserve prices, so there is much potential for bargains to be found.
 
“The range of lots available at auction – GP surgeries, betting shops, shops, pubs and offices – means that pension investors have all manner of choice when it comes to property type, risk and location.”
 
According to Allsop’s 2015 report, sales of retail property increase by 10 percent, implying increasing confidence in the high street among smaller investors. Lots in the South West region in particular were identified as having performed well over the last few years, with net yields in the South West at 7.5 percent compared with 8.5 percent in other regions on average.
 

With the changes to pensions giving retirees the chance to invest their savings as a lump sum into property, and a lower stamp duty top rate of 4 percent for commercial property compared with 15 percent for residential, Allsop believes 2016 is likely to see more and more investors take a look at commercial property.
 
Duncan Moir, Commercial Partner and Auctioneer at Allsop, added:
 
“Our 2015 results are testament to the appeal of commercial property as a tangible asset offering decent returns but with lower volatility than the stock market. While London and the South East continue to be a safe bet for many investors, it is clear that there is great value to be found in other regions and asset types.”
 
Martin Tilley, Director of Technical Services at pensions specialists Dentons, said:
 
“Commercial property is an important asset class for diversifying risk in an investment portfolio, as generally property doesn’t highly correlate with other asset classes such as equities, bonds, and cash, and it typically isn’t affected by what’s going on in the stock market.
 
“While it can be argued that recent tax changes on buy-to-let have made residential assets less attractive, we think commercial property can be viewed as a pensions investment asset on its own merits.“