A silver lining for UK commercial property

John Smiles, Qualified Financial Advisor, Hooper Dolan Financial

In a recent presentation to investors by Standard Life Investments, their prognosis wasn't as gloomy as expected.

There are a many reasons why the outlook for commercial property remains strong in spite of what many people might think. It's hard to believe, given the shaky history of this sector, but experts are optimistic about investing in UK commercial property.

But should you invest now or later?
Standard Life Investments says now is a good time and here are some of the reasons why:

• The UK property market has already experienced a double dip, once before January 2008 and again in December of the same year, after the collapse of Lehman Brothers. Experts don't expect a triple-dip.

• The property market is now yielding close to 7.5 per cent.

• Property is very highly correlated with economic activity. Experts say there are no reasons to suggest that asset prices will be cheaper next year, when the economy starts to stabilise.

• Construction levels in central London are nowhere near its peak of 2000 and 2001.

• There are fewer new construction starts meaning there will be supply shortages in 2010 and 2011. This could fuel a rental upswing.

• Solid returns against cash.

• Buying into the bottom of the cycle is a good opportunity especially for foreign investors looking to take advantage of a weak pound.

Other property markets that might be of interest to investors are France, particularly Paris because of its diversified tenant base, liquid market and low exposure to financial markets. Canada and Australia, both resource rich economies are expected to lead in the economic recovery.

But risks remain:
• Expect a "soft patch" in the second half of 2010, due to a possible overheating in the UK property market.
• Banks are still not lending enough.
• Path of the recovery is still somewhat uncertain.