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Commercial Property Investment

Continued low interest rates, strong recent economic performance, liquidity in the market and increased investor confidence has resulted in strong demand for commercial property, with returns forecast to be the highest the UK has seen since before the financial crisis.

Economic surveys and reports rarely agree, with one commentator’s view often contradicting the next. However, in the area of commercial property investment in the UK, in particular in the South East of England, most agree that this represents a good place to be with good rentals, attractive pricing in relation to other asset classes and strong total returns.

The strong demand for prime and good quality secondary property is easy to understand. Interest returns on cash deposits remain pitifully low and the long expected rise in interest rates is still to be seen. Indeed, even when rates do rise, it is likely to be some time before we see base rates reach even 2%, the lowest rate in place before 2009. At the same time, the improving strength of the UK economy has resulted in increased demand for property, particularly in the office and industrial sectors. This, coupled with the reduction in construction during the financial crisis has resulted in demand outstripping supply in some areas. Add into the mix overseas investment and the rise in capital values currently being experienced is not a surprise.

As a Trustee of a large, asset backed charity I know from experience the difficulty in finding good quality commercial property to buy. This has led a number of investors to consider alternative means to increase their portfolios, including funding new developments, refurbishing older stock and in offering sale and leaseback arrangements to owner businesses. Whatever the tactic employed, it is essential to get good advice across a range of areas and this is where the Mercer & Hole property team can help. Particular areas include:

•  Raising finance: whilst opportunities for investing may look compelling, raising bank finance remains challenging. Our corporate finance specialists can help, from preparing business plans and forecasts to support borrowing proposals to considering other forms of raising finance.

•  Taxes: aside from stamp duty, VAT always has to be considered and properly managed for all property transactions – at a rate of 20% getting it wrong can be costly! Recent changes to rules governing capital allowances also have to be understood and applied, both for new builds/refurbishments and in purchasing second hand properties. Our VAT and tax specialists will guide you through these complex areas.

•   Holding structures: options might include a corporate holding, a partnership/LLP, a personal holding, a trust etc. Short term and long term objectives need to be considered, both from an earnings and a capital appreciation point-of-view, together with the impact on other business activities undertaken. Again, we will help you identify the best structure for your particular circumstances.

To discuss your commercial property investment activities and how Mercer & Hole can help, please give me a call or send me an email to the address shown alongside.

 

 

Date: 12th January, 2015
Author: Andrew Lawes

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