What Type of Investor Typically Invests in Commercial Property?
Are Permitted Developments from Commercial to Residential a Good Idea?
How does Property Partner Select their Commercial Properties?
The UK’s Commercial Property Market and the Rest of the World
Rob: In today’s question, we are going to be looking at, how does the UK’s commercial property compare to the rest of the world? So, I guess, Xavier, there are lots of places people can choose to invest in, not only in property but in commercial properties, specifically. What is your experience of commercial investment in other countries?
Xavier: Years ago, we set up a company in America, based in Chicago and so that gave us an interesting insight into the way property works in America. That was industrial, actually. And then, more recently, I was involved in building up a substantial portfolio in Germany and in that process, we looked at a number of other countries.
Rob: Where there clear differences? When you are going into a new country are you seeing very obvious differences?
Xavier: Well the funny thing is, you don’t necessarily see them as very obvious. So, one of those things which you may ignore, initially, is the whole legal structure, the security structure. We take it for granted, we own a freehold, we’ve got boundaries and all that sort of stuff, it’s taken as a given.
A very good friend of mine was buying a villa in Majorca and all of a sudden there was somebody building in his front garden. And there are all of these things in Spain, currently, which are under threat of being demolished because they were all built too close to the coast.
There are some very strange things that go on and those are the things that get publicised.
But in other countries, they are all slightly quirky. In some countries, leases don’t have the full validity that we take for granted. Exercising a landlord’s rights, which would normally be able to do if a tenant was in default, doesn’t happen in the way that we would expect it to.
Rob: Not only the process of ownership, which is massively important but also the process of what happens next, with the lease and the tenant.
Xavier: A friend of mine, he had commercial property. It let, it had a fixed increase in it. The tenant goes to court and claimed it was uneconomic for them and he had to wait.
There are things like that. We have case precedent that goes back centuries and that is regarded as extremely valuable.
We have a lot of overseas buyers, looking at commercial property and they love that. They don’t, immediately, anticipate it but when they do they think, that is tremendous.
We have got a very liquid currency and we have got a very liquid property market. And that is hugely beneficial. Some of these markets are very illiquid. Our market is very transparent. You can go onto the Land Registry website and you can look up all this data.
Rob: We take that for granted because all that stuff is readily available, to an extent, now. Maybe it wasn’t 20 or 30 years ago but for many other countries, they don’t have that, necessarily.
Xavier: We used to go to the pub and talk about what Joe Soap might have got for his house, down the road and now you can just find out, precisely, what he got for it. All that’s really good.
In other countries, it is very difficult to lay your hands on that information.
So, we have got all sorts of online companies that provide databases and things like that, which is hugely valuable when you are looking at researching an area and deciding what you might invest in. We use all that.
Rob: And are yields in the UK and price values and asset values, are they aligned, comparable, competitive, compared to other countries?
Xavier: Yes, I think. If you look around Europe, for example, with the advent of Quantitative Easing and all that, that has gone. With interest rates, being, historically low, people have been looking around for any income they can get. And that has tended to benefit the pricing of commercial property. Because it does provide you with that income that is so difficult to get anywhere else, these days.
So, in euro-land, financing is even cheaper. You might even be charged for keeping your cash on deposit in some countries. Whereas we might complain about getting very low interest rates, in some countries, you might actually be penalised for having cash in a bank. You can see how that would drive prices.
Rob: Do you see more stability in the UK market, than in other countries? I appreciate that there will be cycles and there is going to be timeframes. Some things will be more volatile than others. But generally, when you have been in America, Germany, you’ve looked at other countries and in the UK, are there trends that you see and stability, in the UK?
Xavier: For the minute, obviously, the country is going through this whole unsure period. But in spite of that, I was talking to one of the big surveyors, the other day, who is still seeing a huge amount of interest from the Far East, looking at city-office property, commercial property and because relative to their own country, it is still very secure and they, certainly, have a different view about it. So, yes, it is still very positive.
Rob: Thanks, Xavier.
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