Income or Capital? What do you want from your commercial property investment?

Income or Capital? What do you want from your commercial property investment?

Generating returns from commercial investment takes ingenuity, boldness and foresight and most investors will be looking for either income or capital gains. We take a look at both sides of the commercial investment argument and ask which is right for you.

Income

In a sector where occupier demand is rising and supply is falling [RICS Q4 2015: UK Commercial Property Market Survey] commercial property is still seen as a popular investment. Forecasts for total commercial property returns are set at around 8.8% for 2016 and while some fear that the London market may be undergoing ‘yield compression’ other areas of the country are experiencing strong rental growth.

Investors who wish to maximise income through renting commercial properties such as industrial space, office space, student accommodation, retail space, land or, even in some instances, car parks, have a choice at which level they enter the market; prime property, will command the highest purchase price but also the highest rental yield; secondary and tertiary properties will cost less to buy but will be in locations where rents will be lower and top-quality tenants harder to source.

According to some estimates, secondary and tertiary retail is actually outperforming prime London retail rental by at around 8% so there are substantial gains to be made in less ‘fashionable’ areas. Astute investors, therefore, should be on the lookout for properties in locations which are up-and-coming and which are subject to possible regeneration – a search on the website of the council in the area that you’re considering purchasing in will detail all regeneration plans, giving you an idea of where to buy for maximum future benefit.

If income generation is your major driver when investing in commercial property, you need to balance the benefits of a long-term tenant with a secure lease whose rent rises annually and in line with inflation (thereby establishing a secure and regular income) against those times in between tenancies when the property may be lying empty and not realising any returns whatsoever.

Capital

If you prefer the idea of long-term gains, you may be more interested in the capital appreciation of your property than its rental income, especially if you’re experiencing a dearth of tenants or your property is in an area which is still feeling the repercussions of the 2008 crash.

Valuing a commercial property can be fraught with difficulties and valuations rely on the amount of rent the property can generate and the desired rate of return. However, you can maximise your capital through shrewd behaviour to put you in the best position to sell when the time is right. Research the area before your purchase to ensure that you gain an insight as to whether it’s on the up, merely stable or in decline. Long-term planning can benefit you enormously and guide you as to when is the best time to sell to ensure the highest possible rate of return on your investment.

For advice on any aspect of commercial investment, purchases, sales and leases, contact the Eddisons team. Our experienced and professional staff are experts in commercial property valuation and can offer you impartial and confidential guidance to assist you with your investment portfolio.

 

Written by: Steven Jones on Tuesday 12/04/2016

 

How has the budget affected commercial property?

How has the budget affected commercial property?

 

The Chancellor’s recent budget included far-reaching changes for owners of commercial property. We take a look at what was included and what it means for commercial landlords.

Business rates

From April 2017 the small business rate relief threshold will be more than doubled, from £6,000 to £12,000. This means that almost 600,000 small businesses will pay no business rates at all and many will save up to £6,000 every year.

Business premises renovation allowance (BPRA)

Introduced to encourage investors or commercial property owners to renovate derelict business premises or bring them back to a functional state, BPRA offered investors a 100% tax allowance on expenses which were required to do so. From 31 March 2017 (for corporation tax payers) and 5 April 2017 (for income tax payers) this allowance will no longer be available meaning that people wishing to renovate or convert buildings into commercial premises will have to pay the full tax on building works and services.

Stamp Duty Land Tax (SDLT)

One of the chancellor’s main changes, which will affect buy-to-let landlords particularly, is the introduction of a higher rate of stamp duty land tax (SDLT). This will affect investors who wish to enlarge their portfolio of buy-to-let properties which cost more than £40,000. The changes place an additional 3% on all bands of SDLT and raise the minimum payable (on properties valued between £40,000 – £125,000) to 3% and the maximum (on properties worth more than £1.5 million) to 15%. The government expect this increased levy to generate over £630 million in 2016/17 and up to £855 million by 2020/21. The change will affect investors who own a second (or more) property which is not their main residence and purchase another one. To ease in the adjustment, a proposed time delay has been put forward. This means that there is now a 36 month period of grace (with a starting date of 25 November 2015) whereby buyers can claim a stamp duty refund.

Capital gains tax

The rate at which capital gains tax is paid is set to fall by 6 April 2016 from 28% (for higher rate tax payers) to 20% (18% for basic rate tax payers down to 10%). However, these rates will not apply to gains made on second homes or buy-to-let properties and will remain at the existing rate. The government explained that it wished to provide ‘an incentive for individuals to invest in companies over property’ in a move to stabilise the rental housing market.

Property and trading income allowances

A new £1,000 allowance for income earned through property will be introduced from April 2017. This means that income earned by ‘micro-entrepreneurs’ on renting out all or part of a residence, building, land or property (even in some cases a driveway as a parking space for commuters) will not have to pay tax up to the amount specified.

Wear and tear allowance scrapped

From April this year, the wear and tear allowance is being scrapped. Previously, landlords were able to deduct around 10% of the taxable profit on their rental income to allow for wear and tear. The new system will allow them to deduct the actual cost of replacements of furnishings, fixtures and fittings. The changes will not affect landlords who wish to claim tax relief on the cost of routine property repairs and will still include the property’s furniture and fittings – these items will still qualify for full tax relief.

If you need advice on any aspect of how the government’s budget will affect you, as a commercial landlord, please get in touch with a member of the Eddisons team. We can offer you confidential, considered advice on a range of commercial property services including business rates appeals, lease advice and empty property compliance.

 

 

Written by: John Padgett on Thursday 31/03/2016

 

Budget Brings In Changes to Commercial Property Stamp Duty System

Budget Brings In Changes to Commercial Property Stamp Duty System

 

The Budget announcements made by the chancellor George Osborne in recent days included details on changes to the UK’s commercial property stamp duty system.

As of March 17th 2016, the ways in which stamp duty calculations relating to freehold commercial properties and leasehold premium transactions are carried out were changed and the impact could be significant.

Key to the new calculation process is the introduction of different rates and tax bands which will replace the old system which would assess stamp duty obligations on the basis of entire transactions.

“At the moment, a small firm can pay just £1 more for a property and face a tax bill three times as large. That makes no sense,” Mr Osborne told the House of Commons during his Budget speech.

“So from now on, commercial stamp duty will have a zero rate band on purchases up to £150,000; a 2 per cent rate on the next £100,000; and a 5 per cent top rate above £250,000,” he explained.

Among the consequences of the changes will be reduced stamp duty demands on anyone buying a commercial property worth up to £1.05 million.

On the other hand, investors in larger and more expensive commercial properties throughout the country are set to see an increase in the amounts that they need to pay as stamp duty in relation to their transactions.

According to the British Property Federation (BPF), this could be bad news for local and regional economies across the UK.

“Commercial property investment can often act as the catalyst for regional growth and as the economy has recovered investment has been spreading out from London to the UK’s regions, but will now undoubtedly slow,” said Melanie Leech, chief executive of the BPF.

“The real set back is that development in places like the Northern Powerhouse and Midlands’ Engine will now be held back as a result of this out of the blue raid on commercial property transactions,” she said.

In defence of the changes introduced in his Budget, the chancellor said that while the parties involved in 9 per cent of commercial property transactions will now pay more in stamp duties, 90 per cent can expect to “see their tax bills cut or stay the same”.

Key to the new calculation process is the introduction of different rates and tax bands which will replace the old system which would assess stamp duty obligations on the basis of entire transactions.

 

 

Written by: John Padgett on Friday 18/03/2016

 

How to bag a good commercial property investment

How to bag a good commercial property investment

According to the RICS Q4 2015 UK Commercial Property Market Survey occupier and investment demand for commercial properties is continuing to rise, albeit at a slower pace than previously. However, the report notes that demand is outstripping supply throughout the whole of the UK. With this in mind, we ask how you can bag a good commercial property investment.

There are three different types of commercial property – retail, office and industrial – and research from a property consultancy suggests the total investment in the three different categories during 2016 will amount to more than £70 billion. Much of this investment has come from overseas and is focused on the central London market. However, if you’re one of the 12% of private investors who owns one or more commercial properties and are keen to broaden your property portfolio, or are looking for a first time investment, there are some simple steps you can take.

Ask yourself why

By establishing the reasons that you wish to invest in commercial property, you will be able to more easily identify the type of property you’re looking to invest in. Perhaps you’re looking for a low-risk investment or the security of a tenant on a long lease or perhaps you want a long-term investment in an up-and-coming area. By knowing what you want to accomplish in the future, you will stand yourself in good stead of achieving your investment goals.

Know your priorities

Knowing the difference between what you want and what you need is vital. It’s a good idea to make a list of the most important factors in your property search so that you can compare them to the actuality of the situation. It may be that you will need to compromise on certain aspects, such as price or location, but if you’re able to do this you stand a far greater chance of finding a property that suits your needs, rather than your wants. By focusing on your preferred options you can also identify several alternative properties should your first choice fall through.

Set a budget

Your personal finances will usually dictate how much you have at your disposal in your commercial property search. Whether you’re relying on the equity from a previous sale, your savings or a buy-to-let loan, make sure you factor in all the expenses you will incur and set them against projected income to see if the books balance in your favour. A sizeable deposit will strengthen your negotiating position too.

Do your research

In order to source the very best property for your requirements, extensive research is needed. The internet is a valuable research tool with many sites listing commercial properties – you can sign up for email alerts when new properties become available. Industry journals are an excellent source of background information about the property market as a whole. You can use them to analyse geographical trends and pricing forecasts for an indication of where may be a good location to purchase. If possible, get in touch with your local Chambers of Commerce to see if they can advise you, and make the most of any personal contacts you have. If you have spotted a likely location for your next purchase, try to contact the current owners to see if they would be amenable to a sale, or ask if they know of any similar properties which will be likely to come onto the market in the future.

Searching for a commercial property investment is a fluid and dynamic function. It’s a rare occurrence that the right opportunity drops into your lap, so hard work, determination and not a small amount of luck is needed for the most satisfactory outcome. At Eddisons we have experts in the commercial property field whose wide range of professional knowledge can assist you in your search for the right property for you. If you need advice, please get in touch.

It’s a rare occurrence that the right opportunity drops into your lap, so hard work, determination and not a small amount of luck is needed for the most satisfactory outcome

 

Written by: John Padgett on Monday 14/03/2016

 

Landlords Urged to Check Legal Status of Tenants

Landlords Urged to Check Legal Status of Tenants

The Royal Institution of Chartered Surveyors (RICS) is urging landlords to ensure they make full checks of whether prospective tenants are lawful UK residents or risk a fine of £3,000 per tenant.

RICS has delivered this warning to give landlords a further nudge since the new government Right to Rent Legislation became mandatory on February 1st. The new Right to Rent checks mean that private landlords across England are obliged to make appropriate checks on their tenants and that they have a right to be in the UK. The legislation is applicable to new tenancies only at present and is part of the government’s attempt to clamp down on illegal immigration.

The new legislation requires landlords, including those who are subletting or renting out a single room to a lodger, take copies of the identity and citizenship documentation from any potential tenants. If there are situations where a form of official identification cannot be produced, then landlords or letting agents can request the Home Office carry out a ‘Right to Rent’ check and this will deliver a response within two days.

In some cases, it may be found that a tenant is allowed to be in the UK for a short time and then they will be rechecked at a later date to ensure they are within the terms of their stay. If it so happens that a tenant is outstaying their allowed period, then the landlord or letting agency is obliged to evict them and lodge a report with the Home Office or risk the penalty of the £3,000 fine per tenant.

Whilst RICS has issued this warning, they have also been openly opposed to the idea that the government is using landlords and letting agencies as a kind of pseudo border control agency and speaking on behalf of RICS, head of policy Jeremy Blackburn commented: “Some of the new Right-to-Rent law will be of great benefit to landlords, such as the power for them to end a tenancy without a court order, providing the tenant is in the country illegally.

“However, what we don’t want to see happen is landlords and letting agents effectively turn into extensions of the Home Office and Border Force.

“Therefore, it’s important that landlords and letting agents understand that they are not expected to be immigration experts or to have specialist knowledge of immigration documents or VISAs.

“Anyone who is shown a false document will only be liable for a civil penalty if it is reasonably apparent it is false.”

To protect themselves against these new penalties, landlords need to make sure they are carrying out full checks and complying with the Home Office – especially if multiple tenants are found to be residing illegally.

If there are situations where a form of official identification cannot be produced, then landlords or letting agents can request the Home Office carry out a ‘Right to Rent’ check and this will deliver a response within two days.

 

Written by: John Padgett on Tuesday 23/02/2016

 

Bradford vehicle build and repair business gears up with expansion into new site

Bradford vehicle build and repair business gears up with expansion into new site

 

Bradford-based West Yorkshire Truck Services (WYTS), a vehicle body building and repair business, has expanded into new industrial premises at GB Business Park on Cutler Heights Lane in Bradford due to a significant increase in demand for its services.

WYTS, which fabricates a range of bespoke bodies for vehicles from 3.5 tonnes up to 26 tonnes, including Luton vans, flatbed lorries and curtain sided HGVs, has experienced rapid growth over the last three years.

The company’s lease on the new 10,000 sq ft premises, will accommodate its growing need for space to carry out repairs, refurbishments and tail lift fitting and will create 12 new jobs. The new unit is in addition to WYTS’s existing premises at Enterprise Court on Prince Street, Bradford.

WYTS managing director, Kenny Axon, said: “The business has been rapidly growing over the past couple of years and it was becoming increasingly apparent that we were going to outgrow our site at Prince Street.

“We had been looking for the right premises, in a good location and offering the space we need, for some time. Now that we’ve found exactly the right place for us, that will enable us to grow, we can focus on driving the business forward.”

Property consultant Eddisons acted on behalf of WYTS, securing the premises for a rental return of £29,500 a year.

Alex Wilkinson, senior surveyor at Eddisons, said: “WYTS is a long standing client of Eddisons – we secured their Prince Street building for them three and a half years ago – and it’s good to see the business doing so well. Being able to work with them again and help them step up to the next level is particularly rewarding.”

GB Business Park is close to the M606 and is home to a number of high profile businesses including, steel stockholder Barrett Steel, Morrisons and builders’ supplier Wurth.

WYTS is a long standing client of Eddisons – we secured their Prince Street building for them three and a half years ago – and it’s good to see the business doing so well.

 

Written by: on Monday 22/02/2016

Brexit Could Cause Commercial Property Price Drop in City of London

Brexit Could Cause Commercial Property Price Drop in City of London

 

If the United Kingdom votes to leave the European Union it could result in a drop in commercial property values in the City of London, according to a new report commissioned by Woodford Investment Management and carried out by Capital Economics.

Capital Economics’ report suggests that an exit from the EU may have a negative impact on job creation and growth due to a potential 8%-15% fall, according to estimates. The report concedes that not enough is known at the moment to make a proper judgement and much depends on further negotiations.

The report highlights the biggest impact of an exit from the European Union would be on the City of London’s commercial property market. It states; “If Britain lost its free access to the single market, there is a worry that this could rapidly change the country’s status as a commercial gateway to the rest of Europe, with adverse consequences for both occupier and property investment markets” and further asserts that if overseas demand in the City did drop due to leaving the EU, the market will be severely impacted, especially when you take into account the fact that overseas buyers are responsible for around 50% of all commercial property transactions in Britain.

The report predicts a British exit from the EU as ‘likely to hit the health of the City’ and even states that is it possible that some overseas businesses may ‘close or scale back their London operations, putting a dent in occupier demand.’ It also highlighted that a drop in demand would come at ‘an unfortunate point in the development cycle’ and this could result in a vacancy rates spike and in rental values dropping, putting many property investors and business owners in a tricky situation.

Looking at the office space market, the report suggests investors may find themselves reassessing the City’s price premium which has grown steadily over the past two decades and more than doubled in this period – but with less demand this is something that may not continue.

If the City was to become less attractive and, as the report states itself ‘permanently damaged by the United Kingdom’s departure from the European Union’ in the eyes of potential investors, then a jump of between 50 and 100 basis points in City office yields would not seem implausible and this would equate to 8-15% of capital values.

This is one report looking into how Britain’s exit from the EU could impact the City of London and there are sure to be many more to provide business owners and property investors with a broad understanding before it is time to vote.

Looking at the office space market, the report suggests investors may find themselves reassessing the City’s price premium which has grown steadily over the past two decades and more than doubled in this period.

 

Written by: Abdul Jambo on Monday 29/02/2016

 

 

The city centre of Leeds has had its second-most successful year ever

The city centre of Leeds has had its second-most successful year ever

 

The city centre of Leeds has had its second-most successful year ever in terms of take-up of office space and occupancy in 2015. This information has come via the Leeds Office Agents’ Forum who distribute definitive market data and are made up of leading surveying firms in the city, including Eddisons. The statistics for 2015 are second only to 2013 which was the city’s best ever year and the figures from the fourth quarter of the year were particularly promising, as the highest ever recorded.

A total volume of 680,100 square foot of office space in Leeds city centre changed hands or was transacted in the whole of 2015 which marked a 25% increase on the figures from 2014 and as mentioned, was only surpassed by the record topping figures of 2013. The figures for 2015 were also significantly higher than the average for the five-year period of 546,762 square foot.

The final period of 2015, Q4 2015, was the most successful, with more city centre office occupancy take-up recorded than ever before with take-up in the period reaching 267,187 square foot which marked a 138% increase on the previous period and a positive sign for the coming year. The largest letting of the whole year was also transacted in Q4 2015, 97,022 square foot which was pre-let to Sky at Leeds Dock.

Commenting as a representative for the Leeds Office Agents’ Forum, Robin Beagley, Partner at WSB Property Consultants said: “Activity in the Leeds office market has exceeded our expectations – overall city centre take-up is the second highest after the record breaking year of 2013. Activity in the final quarter was particularly strong, not only did we see the biggest letting of the year, a couple of long-running requirements, namely Harrison Goddard Foote agreeing terms at 1 City Walk and Leeds University taking space at 21 Queen Street, finally came to fruition.

“Looking ahead, with buildings 5 and 6 Wellington Place, Central Square, 6 Queen Street and 3 Sovereign Square coming on stream during 2016, the future of the city centre office market looks extremely positive.”

The market out-of-town in Leeds also followed a similarly positive upturn with a 98,490 square foot of office space transacted in Q4 2015 and a take-up for the full year of 268,041 square foot which was again an increase on the previous year, this time of 13%. Many of the deals secured in the last quarter were for large premises of over 10,000 square foot including the largest of them all at 16,122 square foot, let to Cascade HR at the City West Business Park.

Senior Surveyor at Fox Lloyd Jones, Nick Salkeld also commented on the out-of-town market, saying: “We have seen a resurgence in the out-of-town market with circa 270,000 sq ft of take-up during 2015 and a new headline rent set which is testament to the demand for improved quality of stock. The market will be strengthened by new development planned at Thorpe Park, WROP and Kirkstall Forge where these quality benchmarks look set to compete with the city centre stock. These schemes complement existing stock levels across the city and ensure occupiers considering Leeds will be able to choose from a wider range of quality options.”

A positive 2015 sets a good precedent for 2016 to continue in the same vein and for more businesses to make the most of what the Leeds business scene has to offer, both in the heart of the city but also in business and industrial sites around the outskirts and out-of-town areas.

A positive 2015 sets a good precedent for 2016 to continue in the same vein and for more businesses to make the most of what the Leeds business scene has to offer.

 

Written by: John Padgett on Thursday 28/01/2016

 

 

City Centre Office Take-Up in Leeds hits Record High in Q4 2015

City Centre Office Take-Up in Leeds hits Record High in Q4 2015

 

The city centre of Leeds has had its second-most successful year ever in terms of take-up of office space and occupancy in 2015. This information has come via the Leeds Office Agents’ Forum who distribute definitive market data and are made up of leading surveying firms in the city, including Eddisons. The statistics for 2015 are second only to 2013 which was the city’s best ever year and the figures from the fourth quarter of the year were particularly promising, as the highest ever recorded.

A total volume of 680,100 square foot of office space in Leeds city centre changed hands or was transacted in the whole of 2015 which marked a 25% increase on the figures from 2014 and as mentioned, was only surpassed by the record topping figures of 2013. The figures for 2015 were also significantly higher than the average for the five-year period of 546,762 square foot.

The final period of 2015, Q4 2015, was the most successful, with more city centre office occupancy take-up recorded than ever before with take-up in the period reaching 267,187 square foot which marked a 138% increase on the previous period and a positive sign for the coming year. The largest letting of the whole year was also transacted in Q4 2015, 97,022 square foot which was pre-let to Sky at Leeds Dock.

Commenting as a representative for the Leeds Office Agents’ Forum, Robin Beagley, Partner at WSB Property Consultants said: “Activity in the Leeds office market has exceeded our expectations – overall city centre take-up is the second highest after the record breaking year of 2013. Activity in the final quarter was particularly strong, not only did we see the biggest letting of the year, a couple of long-running requirements, namely Harrison Goddard Foote agreeing terms at 1 City Walk and Leeds University taking space at 21 Queen Street, finally came to fruition.

“Looking ahead, with buildings 5 and 6 Wellington Place, Central Square, 6 Queen Street and 3 Sovereign Square coming on stream during 2016, the future of the city centre office market looks extremely positive.”

The market out-of-town in Leeds also followed a similarly positive upturn with a 98,490 square foot of office space transacted in Q4 2015 and a take-up for the full year of 268,041 square foot which was again an increase on the previous year, this time of 13%. Many of the deals secured in the last quarter were for large premises of over 10,000 square foot including the largest of them all at 16,122 square foot, let to Cascade HR at the City West Business Park.

Senior Surveyor at Fox Lloyd Jones, Nick Salkeld also commented on the out-of-town market, saying: “We have seen a resurgence in the out-of-town market with circa 270,000 sq ft of take-up during 2015 and a new headline rent set which is testament to the demand for improved quality of stock. The market will be strengthened by new development planned at Thorpe Park, WROP and Kirkstall Forge where these quality benchmarks look set to compete with the city centre stock. These schemes complement existing stock levels across the city and ensure occupiers considering Leeds will be able to choose from a wider range of quality options.”

A positive 2015 sets a good precedent for 2016 to continue in the same vein and for more businesses to make the most of what the Leeds business scene has to offer, both in the heart of the city but also in business and industrial sites around the outskirts and out-of-town areas.

A positive 2015 sets a good precedent for 2016 to continue in the same vein and for more businesses to make the most of what the Leeds business scene has to offer

 

 

Written by: John Padgett on Thursday 28/01/2016

 

‘Unique’ Bradford industrial site up for sale

‘Unique’ Bradford industrial site up for sale

 

One of the few remaining large-scale development sites in Bradford city centre has come to the market following confirmation of packaging company Holmes Mann’s plans to relocate its business.

Property consultant Eddisons has been instructed to sell the freehold interest of the 73,000 sq ft industrial units on a 2.4 acre site on Harris Street in Bradford. The firm has also been appointed to acquire new premises on behalf of the 125-year-old family business, which produces a range of cardboard and wooden packaging for blue-chip clients such as Rolls Royce, Sony and Johnson & Johnson.

Situated close to the ring road, the prominent site also fronts the Shipley Airedale Road and is suitable for a variety of uses. The existing building includes a number of interconnecting single-storey industrial units, secure yard and car parking areas.

John Padgett, Director at Eddisons, said: “The recent opening of the Broadway shopping centre has been a real boost to the city centre and is helping to put Bradford back on the map in the eyes of developers. Large city centre sites such as Holmes Mann’s, with good access and in a convenient location, are becoming increasingly rare.

“This is one of the last remaining city centre development opportunities which is attracting a lot of interest from a wide range of prospective buyers and we’ve already undertaken numerous viewings.”

Barny Holmes, managing director at Holmes Mann, added: “It’s been a landmark 12 months for Holmes Mann, we’ve celebrated our 125th anniversary, heavily invested in new equipment and expanded the workforce to keep up with growing demand. We now need to move to more modern premises to increase production levels and double our turnover to £7.5 million in 2016 so we need somewhere that will accommodate that growth.”

Holmes Mann has a long history in Bradford. The fifth generation family business was established by Jonas Holmes in 1890 to produce rolling boards for the city’s booming textiles industry. The company plans to relocate to new premises in Bradford.

For further information on the Harris Street site, contact John Padgett at Eddisons: john.padgett@eddisons.com

 

Written by: on Wednesday 16/12/2015