UK commercial property no longer investors' favourite

UK commercial property no longer investors' favourite

UK commercial property is no longer the most appealing in Europe since Britain's vote to leave the European Union and the Bank's decision to interest raise rates, according to Brickvest, an online property marketplace.

Brickvest co-founder Emmanuel Lumineau said a recent survey of its clients showed a third thought German commercial property represents the best investment opportunity in Europe right now.

This is the first time the UK market has been less popular than that of Germany.

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Mr Lumineau said while the imminence of the UK leaving the EU has clearly had an impact, the decision by the Bank of England to put interest interest rates up is of greater significance.

“Increasing interest rates has a direct impact on real estate. Higher interest rates and rising inflation make borrowing and construction more expensive for owners, which can have a constraining effect on the market but can also lead to an increase in property prices," he said.

"In a low interest rate environment, European real estate yields will continue to look attractive and real estate serves as a good alternative to fixed income.”

The European Central Bank has not yet put interest rates up.

James Sullivan, who runs three multi-asset funds for Miton Optimal, has previously been keen on German property, but has reduced his holding as valuations have risen.

He continues to invest in some of the larger UK Real Estate Investment Trusts, notably Land Securities.    

His view, which is shared by Mark Barnett, head of UK equities at Invesco Perpetual, is that sentiment towards UK property shares is so weak as a result of worries about the health of the UK economy that the shares have become cheap.

Mr Barnett’s view is that the investment trusts trade at a discount to their net assets, yet when those assets are sold, they tend to fetch prices that are higher than the value at which those assets are held in the accounts of the property investment trusts.

This means, according to Mr Barnett, that the UK property REITs are valued as if the property is worth less than the companies hold it in their accounts, when the evidence suggests it is actually worth more.

Simon Edelsten, who runs the £153m Mid Wynd Investment Trust, has little exposure to the UK economy in any of his funds, but does own several niche UK commercial property companies as he feels the income level on those assets is presently very attractive.