Business mortgage holders may benefit from strong investment opportunities this year

01 February 2012

Written by Jenny Barrett

The commercial real estate market of the UK is fundamentally different to how it used to be, at least in the short to medium-term.

This is according to Phil Clark, chair of the Investment Property Forum and head of property investment at Kames Capital, who noted there are many opportunities throughout the UK that could potentially provide strong returns during 2012.

Some individuals may be taking out mortgages for business in order to secure prime office space in London and the south-east, as they do not have the confidence to purchase any other assets during ongoing economic uncertainty.

However, he claimed "more experienced investors" will seek premises outside of these locations, while banks will continue to deleverage the amount of exposure they have to commercial property within the UK.

Forthcoming or new regulatory changes and the sovereign debt crisis causing an uncertain economic climate within the eurozone are responsible for this lack of confidence, the specialist remarked.

Mr Clark argued despite severe declines in the value of UK corporate real estate during 2008-09, the sector still offers 12-month total returns of 8.1 per cent, with the number of transactions similar to the historic average of £30 billion annually.

These figures come from the Investment Property Bank's UK Monthly Index Statement for December 2011, which noted income return for the year hit 6.8 per cent, while capital growth was just 1.2 per cent.

Mr Clark added: "Some institutional investors are starting to see the compelling opportunity to take the place of banks."

They are providing commercial mortgages and other funding streams to experienced investors in the industry and enabling the purchase of good-quality properties, the expert continued.

He asserted "substantial opportunities" can be realised in alternative real estate sectors, highlighting student accommodation, ground rents, healthcare and sale and leasebacks "to name a few".