South: Vail Williams eyes green shoots of recovery

The commercial property market often leads the way into an economic downturn, but equally, can it be an early indicator that the end is in sight?

In the Investment Division at leading real estate advisers Vail Williams there are signs that for clients in one specific area of the commercial property market, the recovery is starting to move forward. These are for private investors at the lower end of the market.

Small private investors have traditionally relied on income from investments in key areas of the financial sector, such as pension funds. With interest rates at an all-time low and funds that are RPI linked showing no growth, these areas are producing very little income now. These investors are looking for alternatives to produce an income, and are turning to commercial property, and in particular the low end £½ million to £1 million properties. These commercial properties can give 6-8% net returns and if carefully selected, properties with long-term reliable tenants on leases of 10 years or more, can give a decent return on their investment.

For investors, as well as offering a security that will ensure they see a decent income, these commercial properties also offer a tangible asset. Land in the UK is a finite resource and since there is currently no new development taking place, secondhand property is of greater importance. This low-end area of the commercial property market is busy across the UK, but local investors often want a local investment in their area to suit their specific requirements.

Examples

Whilst interest rates remain low, which will probably be for another year or more, this area of commercial property will continue to remain strong. This may herald the very smallest green shoots for commercial property. Demand is pushing prices down and the Yield is approaching the figures seen in 2006. With spare cash in the market from small investors and interest rates low, this sector will remain active whilst the investment continues to be attractive.