Being there for new and existing landlord investors diversifying with commercial assets
By Market Financial Solutions
For some BTL landlords, the need for diversification is becoming increasingly apparent. In the property world, some landlords appear to be turning their attention away from the residential market to instead focus on the commercial/semi-commercial scene.
In fact, semi-commercial finance applications are on the up and in Q2 2024, UK commercial real estate investment volumes rose by 6% quarter-on-quarter to £12.2bn, according to CBRE. Our own independent research from early 2024 also showed that, outside of standard BTL assets, property investors are also tempted by student accommodation including purpose built student accommodation, holiday lets, and commercial real estate this year.
The commercial property market may even see interest from new, embattled investors soon due to recent drama in the global stock market. This may lead to some rethinking about how much exposure they should have to equities, rather than bricks-and-mortar.
Demand is rising in the commercial market, and values are on the rebound. Commercial investment activity is set to increase gradually in the 2nd half of 2024 as “investors seek to reposition portfolios and deploy capital to take advantage of the rebasing of real estate prices” according to CBRE. Already, we’re seeing commercial property auction demand jump as investors put election uncertainty behind them.
This may appear surprising, considering how commercial property has struggled in recent years. But, fortunes in the commercial world may be on the rebound. Commercial capital values rose by 0.2% for the second consecutive month in June 2024. Rental values also rose by 0.2%, and total returns were 0.7%. Meanwhile, Savills reported that the UK average prime yield sat at 6.07% in June, with shopping centres, South East offices, and leisure parks generating particularly high yields.
The commercial market also presents alternative opportunities for investors who want to benefit from this market, without direct exposure to its risks. For instance, there are many empty offices across the UK that could easily be converted. In fact, UK landlords are turning to flexible or coworking spaces when converting existing offices into new types of real estate.
Specifically, infinitSpace revealed that repurposing traditional office space into flexible or coworking space was the most popular type of conversion (11%), ahead of hospitality (10%), retail outlets (8%), and residential property (7%).
Some existing landlords or owners may also have change forced upon them, which may create opportunity for those who want to expand. Our new UK Government wants to give councils powers to take over empty shops and reopen them without consent from the property's owners.
It remains to be seen how (or if) this plays out. But the threat may spur some owners into action, selling their assets quickly rather than deal with the administrative headache.
Fortunately, the specialist finance market is primed to handle all this. At MFS, our funding is there for first-time commercial landlords looking to enter the market for the first time, as well as seasoned, expanding portfolio owners.
What’s more, we have funding specifically designed for conversion projects. And across all our products, we’ll be able to adapt to whatever challenges or surprises the economy and government has to offer. We’re there for property investors looking for opportunity in the commercial market and beyond.
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