Office real estate in the UK
Last year was the most successful in the last decade for the global commercial real estate market and took the second line in the rating of investments in this type of real estate with an indicator of 224 billion dollars. Office real estate in 2018 was recognized as the most popular segment among investors. According to Knight Frank, the share of investments in offices around the world amounted to 36% of the total volume of transactions in monetary terms, this figure reaches 330 billion dollars. 22% and 17%, respectively, were global demand for apartments and commercial real estate. The current trend is expected to continue for some time.
However, in the UK, the issue of office real estate is quite different than it can be observed in other countries, and Brexit played a decisive role in this. It was after his announcement that a large number of international companies began to withdraw their offices from the center of London, which were previously 100% stable for rent. Owners of this type of property in the British capital then had to search for tenants for a long time, and without finding them, they began dumping. Therefore, investments in office real estate in London are now more risky than ever.
Then another trend emerged –many traders were afraid that the London stock exchange would lose its importance due to Brexit and as a result moved their offices to Manchester and Liverpool – comfortable office clusters have been built in these cities in recent years, the maintenance of which is much more affordable than in London. Some experts believe that now buying office property in the UK is not the most sensible thing to do.
Comprehensive offers for investors
But package investment offers are in great demand among foreign investors, when a small building is purchased for 9-10 million pounds, on the territory of which there are several apartments (usually 5 or 6 apartments on each floor), and on the first level there is a restaurant or a shop with an area of about 50 sq.m. Usually, such objects are taken when it is necessary to increase the value of a specific real estate object.At the same time, the current/low-profit tenant is usually "politely asked" under the pretext of repairs, which soon begins, in addition to updating the premises, another floor is often completed, thereby increasing the profitability of the object, it sometimes reaches up to 9% per annum. It is difficult to buy a restaurant or a store in London now, and through such comprehensive offers it is quite possible, especially since they also involve the services of specialists (accountant, erist, etc., thus taking over the work completely.
Parking lots
Parking in metropolitan London and the surrounding area is managed by a large British developer who is accredited at airports (it is there that most of the new parking spaces were built) – this strategic land is registered in a leasehold from the state. Lots for land that is located around airports are practically not found, since there is no new construction and new proposals – most agencies are on the waiting list. The annual income for parking is on average 8% for owners, and the cost of one parking space in the open air ranges about 25,000 pounds. It is possible that some offers will appear on the secondary market, but a margin of 5-6% will already be made on them.
Investment in student housing
Currently, two more sectors related to real estate investment are actively developing in the UK: student housing and nursing homes. As for student housing, British education dictates the rules around the world, which remains one of the best in the world, making it one of the most famous and attractive. Today, having a British education is prestigious all over the world, so a large number of international students come to the UK. According to Knight Frank, the number of non-resident students is increasing every year, and the total number of students studying at universities is also growing. This is partly due to a slight drop in the British pound, which allowed attracting a large number of foreigners who previously could not afford to study in this country.Due to the fact that the flow of visitors is increasing, there is a large shortage of student housing on the market - this is specialized housing, which gives a number of advantages to the student compared to ordinary apartments. First of all, such facilities are relatively cheap to rent, and also provide an opportunity to live together with their peers. By buying apartments in a student complex, the investor receives a higher yield, when compared with ordinary apartments, the yield of student housing fluctuates in the range of 7-9% per annum. At the same time, the value and demand for this type of real estate is determined (and in some sense insured) by the location of a prestigious university in the immediate vicinity of the object.
The cost of student apartments is usually from 60,000 to 120,000 pounds. An investor can purchase both one apartment and a block of several objects, which can become an even more profitable investment of their funds. When buying, it is important to pay attention to the universities that are located near the complex, as well as to how many students study at the educational institution, what is the proportion of foreigners, and also to track fluctuations in local statistics. A prestigious and sought-after higher education institution will provide the investor with stable and high rental payments for many years to come.
Investments in nursing homes
Another developing sector of commercial real estate in the UK is nursing homes. Statistics show that the number of elderly and people in need of care in the UK is actively growing. This is due both to the popularization of a healthy lifestyle, the development of medicine, and the fact that the baby boomer generation is now retiring. The high demand for nursing homes allows those who invest in this sector to receive a return of 8-10% per annum.The investor buys an apartment or a package of apartments in a nursing home and enters into a contract with the operator of the house. At the same time, the contract prescribes a fixed annual yield and the term of the contract: it is usually drawn up for a period of 10 to 25 years. Thus, it will not be a surprise to the investor how much he will earn in a year, and he can also be sure of the stability of income, since the contract with the operator is concluded for a long time. In addition, the repurchase option is often prescribed in contracts with the operator. This means that, for example, after ten years, the investor can get out of the investment guaranteed by forcing the operator to buy back the apartment - this option is prescribed in the contract. Today, the cost of apartments in nursing homes ranges from 70,000 to 150,000 pounds.
In the transaction for both nursing homes and student housing, the investor is always represented by a licensed lawyer who verifies the contracts and the real estate object. At the same time, real estate can be purchased remotely, for example, while in Russia. This type of commercial real estate is most often chosen by those investors who want to receive passive and stable rental income and secure, for example, a pension in the future.
Thank you for your help in preparing the material:
Inessa Panchuk, Head of the USA, Canada, Great Britain and the Middle East of the company Moscow Sotheby's International Realty
Elena Utyumova, Director of the company