Stamp duty rates on buy-to-let and pension freedoms will attract more people to invest in the commercial property market, according to the head of a property auction house.
Allsop’s Duncan Moir said more investors are likely to look at commercial property in 2016, pointing to the sector’s lower stamp duty top rate of 4 per cent compared with the 15 per cent surcharge for residential property.
He also claimed more retirees are now looking to invest their savings as a lump sum into property.
According to Allsop’s 2015 report, sales of retail property increased by 10 per cent, indicating a boost in investor confidence.
The auction house also found commercial property had outperformed shares, bonds and buy-to-let.
Shares in the FTSE 100 fell 1.3 per cent last year, while the return on UK five-year gilts was 1 per cent.
Residential yields averaged around 5.2 per cent, while commercial property returns were significantly higher.
Total sales across all auction houses reached £1bn last year, against the same figure in 2014.
Mr Moir, partner at Allsop, said commerical property could become more popular with buy-to-let reforms on the horizon.
The firm’s Commercial Auctions Annual Review comes weeks ahead of tax clampdowns set to hit pensions and residential property investors in April.
Stamp duty increases, mortgage interest relief cuts and a reduction of the lifetime allowance of pensions will mean thousands of people have to find other ways of investing in bricks and mortar.
Mr Moir said commercial property offers several advantages over residential property, with commercial leases often being more convenient as the tenant, rather than the owner, typically has to take responsibility for the maintenance and the bills.
Commercial properties are also often let to major chains, reducing risk in returns for the owner, which Mr Moir argued could turn many prospective buyers towards commercial property.
Martin Tilley, director of technical services at pensions specialists Dentons, said: “Commercial property is an important asset class for diversifying risk in an investment portfolio, as generally property doesn’t highly correlate with other asset classes such as equities, bonds, and cash, and it typically isn’t affected by what is going on in the stock market.
“While it can be argued that recent tax changes on buy-to-let have made residential assets less attractive, we think commercial property can be viewed as a pensions investment asset on its own merits.”
Harry Lewis, associate director at real estate financial adviser firm W. Coleman & Co, disagreed with Mr Moir’s comments.
“While these are perfectly rational arguments, as to the attractions of commercial versus residential property, the reality is that individuals like to invest in things they understand.
“Over 65 per cent of people own their homes in the UK, and no doubt most will have a view on property prices and the residential market in general - but having an opinion over annual yield compression in the regional office sector is less likely.