At BB&J Commercial, we understand that investors are wanting to seek a flight to safety, with inflation rates and interest rates growing and the ongoing recovery from the global pandemic creating uncertainty.
Yet despite the potential long-term benefits of including commercial property in a portfolio of assets, misconceptions may deter some investors from allocating to real estate.
Today, we are going to explore some of these common misunderstood facts and explain how commercial real estate investment can be a valuable addition to a portfolio for today’s long-term investors.
Investing in commercial property is unpredictable after COVID-19
The global pandemic created a lot of uncertainty for the future of commercial property. Many companies were forced to work from home and predictions saw this becoming a permanent working model. However, hybrid working appears to be the favoured approach as the world emerges from lockdown and commercial property remains very much in demand.
There have been commercial real estate winners rise out of the pandemic. Sectors such as logistics have benefitted from structural changes within the retail market, picking up the lost revenue from the high street.
Sectors that are less cyclical, where demand is less influenced by the economy, have also seen continued performance. These include healthcare and social housing, which all continued to operate throughout the pandemic, as the services and care provided at these properties are essential. Such sectors are indicating long-term trends, highlighting increased demand in the future and are also heavily undersupplied in terms of quality real estate available.
While some uncertainty will continue within some commercial real estate sectors, as the world adapts to a new normal post-pandemic, the negative forecasts for the sector as a whole appear overblown.
Rising interest rates making investing in property less profitable
Lower interest rates, as a result of tight economic policies put in place following the global financial crisis, helped prop up real estate. However, it does not follow that as interest rates start to rise, the commercial property markets will be negatively affected.
Property yields and interest rates have a relatively low correlation, as seen after the financial crash of 2008 when interest rates fell, property yields did not follow the same path.
Investing in property ties my money up for the long-term
Property investments can be illiquid. At certain points in the economic cycle, the ease with which you can buy or sell property will vary. Market shocks and other events can mean it costs more to withdraw from property investments, as we saw during the financial crisis and post-Brexit.
However, liquidity varies across the assets within real estate and the markets in which they are based. By investing in a diversified portfolio of real estate assets through a fund, it can be easier to access listed real estate securities, as well as investing in direct property.
Commercial property investment requires a lot of capital
Deposits and mortgages for commercial properties are higher than those for residential.
Investors looking to make direct investment may need substantial capital.
However, investing through a commercial property fund could mean making a minimum commitment of well under £5,000.
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We hope this blog provided some reassurance for those who are on the fence about investing in commercial property.
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