If you won the lottery tomorrow, would you invest your millions into commercial property?

With foreign investors investing into UK property markets and only targeting prime space in London, it is still very much a two tier market.  In 2011 investment volumes grown by 10%  on  2010 to £10.9bn.

money treeHowever, fears are the euro zone crisis could impact investor appetite during 2012 and a lot more million pounds would be needed to secure prime space especially in our capital city, London.  Therefore, if I did win the lottery tomorrow and I did have many millions to spend there would definitely be areas to consider as a ‘safe investment’.

For instance:

  • Food retail space – With food sales predicting a growth of approximately 3% as consumers now eat more at home.
  • Student accommodation – Looking at towns with a university could also be a consideration, with the prospect of a stable income from a rental.  On average having 7 bedrooms in a large house could make around £85 per week per student amounting to £30,940 per year.  More than £800 million of capital was invested in UK student accommodation during 2011.

Len Rosso, Head of Logistics & Industrial at Colliers International gave his comments, “I would start by purchasing a site for development as a small multi-let industrial scheme. These are currently in demand and difficult to acquire as a standing investment. For this, I would pay around £1 million with a build cost of circa £600,000 as once fully let it would be worth substantially more hopefully.

I would also acquire five smaller industrial warehouse units at around £300,000 each, ideally brand new or modern, which had been sold over the last 12 months at a discount due to the lack of liquidity within market.

When the market improves the capital value of these would go up, but in the meantime a prospective yield of circa seven per cent still looks very attractive.

I would also purchase a mixed-use development site and then apply for commercial usage planning with retail on the ground floor and, ideally, residential above. This would be in a good M25 town or alternatively within one of the London boroughs. I believe this could be purchased for in the region of £1.5 million and once you have achieved planning the value could be raised significantly.

Finally, I would look for small retail/offices within town centers, which would have potential residential use above ground floor, spending up to £1 million on these or potentially one unit.

Rehan Zaman, Director of Capital Markets at CBRE Manchester said “I would buy a number of assets including a high street retail unit for £1 million, providing a 6% yield, an industrial unit for £1 million, providing an 8% yield, and a short let of about five years office building for £2.5 million, yielding 7.25%.

I also would keep £500,000 to invest into a London residential unit. After management and repairs, this would equate to a 4% yield.

My income from the £5 million invested is £341,250 per annum, showing a return of 6.80% before capital appreciation – much more exciting than my bank deposit rate and far less volatile than the stock market.

I would then spend a lot of my time with my feet up as the quarterly cheques roll in from retail, office and industrial investments. I would have my phone at hand to deal with the re-letting and repairs on the London residential, but the pain would be eased by capital growth.

I would need to make sure I have plenty of time available for when the office property becomes empty in 2017. Following refurbishment and re-letting, I would sell it into what I expect to be a much stronger market. Offices can be time consuming but if you get your timing right, you can make a killing.  I would hold the other assets long term”.

 

The above are just a comments of what they would do, what would you do?