Singaporean property investors pivot to UK commercial properties amid rising house prices
UK landlords have suffered major blows during the pandemic due to the government-imposed rent holiday implemented to protect tenants. One in seven tenants is currently behind on rent which leaves landlords in limbo. And with the new lockdown, the tenant eviction ban has been extended until spring.
The rent holiday is not the only stressor for residential landlords. Rental prices in London have also declined as people move out of the city in favour of bigger, greener spaces in the suburbs. Factoring in the current rising house prices in the UK, Singapore investors look to commercial properties for better gains.
Historically, commercial properties are attractive long-term investments due to high yields, well-maintained properties, and professional tenants. During the pandemic, logistics and industrial properties emerged as winners in the commercial property market as investments in UK warehouses was at an all-time high due to the boom in online shopping.
According to Savills, investment in large warehouses and last-mile delivery facilities reached £4.7bn in 2020. This is 25 per cent higher than 2019 figures and £500m higher than 2014’s record.
Compared to retail, offices are also doing remarkably well. In a recent operational update, British Land reported excellent rent collection with 95 per cent of December rent collected as of January 7. After some portfolio rebalancing, British Land is once again a reasonable investment with a prospective dividend yield of about 4.3 per cent.
Since retail and hospitality are currently unstable, experts consider office spaces as safe options. Despite travel restrictions, foreign investor interest remains high. Several big property deals last year involved investors hailing from Asia. The Cabot, in particular, a sprawling office complex in the Canary Wharf, was bought by Hong Kong’s Link Reit for £380 million.
Majority of commercial brokers express confidence in the UK’s economy with 81 per cent saying they are “largely prepared for Brexit” compared to just 1 per cent saying they aren’t. The prevailing sentiment in the office space sector is that things are stabilising. This optimism is largely due to the “vaccine bounce back” effect that will encourage businesses to start opening up.
In addition, Emma Cox of Shawbrook Bank shared in an interview with Mortgage Strategy, “The growth in business volumes when compared to the beginning of last year imply a robust recovery, which is likely to be fuelling the positive outlook for the year ahead.”
Savills is likewise optimistic in the resilience of the commercial property sector as demand remains high. Despite a dismal first three quarters in 2020, the £5bn investment in London offices was “pretty much bang on the same number for Q4 each of the last three years” according to Savills’ head of European commercial research, Mat Oakley.
