The Intermediary – March 2025 - Flipbook - Page 30
SPECIALIST FINANCE
In focus
Commercial
property: Diversify
and thrive
W
ith a
potentially
volatile UK
economy in
2025, it will pay
to broaden the
range of assets commercial property
investors include in a portfolio.
Commentators predict between
two to four Bank of England base rate
cuts this year, but all continue to note
the fluid nature of global politics, the
Government’s plans for growth, and
the cost-of living struggles.
Repossessions have risen
significantly since the forbearance
tactics enforced during the pandemic,
but are still historically low, according
to UK Finance. The 6,440 mortgage
possessions taken through 2024 was
still 20% lower than the average seen
in the five years before 2020 and 87%
below the previous peak seen in 2009.
So, opportunities will arise as
the economy shis and changes,
and diversification into a range of
different asset classes and property
types has always made strategic sense
for any property investor. By mixing
and honing those underlying assets,
investors will create a strong barrier
against risk.
Shifting strategy
The commercial property market
is undergoing a transformation as
investors rethink their tactics to
accommodate changing economic
conditions. If investors have the right
lending partnerships in place, they
ought to expect relationship-driven
support at every stage of their property
and portfolio development.
Rather than focusing solely on
capital appreciation, many are
diversifying across asset types, seeking
income-generating opportunities, and
rationalising their portfolios.
30
The Intermediary | March 2025
Some investors are moving away
from long-term, speculative, capital
appreciation-based investment and
prioritising assets that generate a
stable income. Examples include
Legal & General’s Build-to-Rent
(BTR) strategy across cities like
Birmingham, Manchester and
London, which offer long-term rental
income and secure cashflow as rental
demand rises.
Equally, as e-commerce tightens its
grip globally, investing in large-scale
logistics warehousing as opposed to
struggling high street retail outlets
continues to offer another type of
secure rental income. Student lets
have become another strong prospect
in cities with dense university
populations, as demand remains high
regardless of economic cycles.
For those investing in these asset
types, the capital appreciation is a
given, but they also offer the prospect
of a stable income.
Investor trends also include the
trend of rationalisation – selling
properties which have already been
refurbished or which no longer
offer a value-add element. Next, the
cash is released to reinvest in more
strategic assets.
Another trend gathering pace is the
development of unbroken freehold
blocks, and those with airspace or
development potential above the
building. The sustainability and
cost-efficiency of these types of
developments appeal because there’s
no need to buy the land, reducing the
development cost. The Government
has also relaxed permied
development rights, making it easier
to get approval on these projects. So,
coupled with high housing demand,
many investors are investigating these
opportunities and either adding extra
floors, extending rooops, or selling
CONOR MCDERMOTT
is director of SME lending
at LHV Bank
or leasing the development rights for
these buildings.
Plenty of commercial investors
continue to look beyond the potential
of residential portfolios. Mixed-use
developments with office space, a
residential element and commercial
property are gaining popularity for
their resilience in the fluctuating
market conditions currently.
According to LendLord data
drawn from 1,126 houses in multiple
occupation (HMOs), the hotspot with
the highest average yield of 15.4%
for HMOs is for investments in the
North East. However, the NorthSouth divide still means the highest
annual rental return emerged out of
the South East at £46,041. This is why
many investors choose to diversify
portfolio investments across the UK,
adding a more consistent mix to large
portfolios.
Supporting investors
Lenders with the expertise and
capacity to provide the finance for a
wide range of commercial and mixeduse properties will be the best partners
as investors look to expand further.
Providers can offer tailored
solutions through seasoned business
development managers (BDMs) who
are happy to advise or handhold
investors through the complexities
of the market. For example, we
offer flexible repayment structures,
including providing equity releases for
those keen to be ready to strike when
an opportunity arises.
Whatever this year climate brings,
partnering with the right lender will
be key to success for any investor. ●
