THE combination of rising interest rates and a balanced approach from investors will lead to healthy growth in the Yorkshire commercial property market over the next year, says a Leeds investment specialist. Speculation that, in view of the rising cost of borrowing for highly-geared investments, the commercial property investment market has "topped out" is not borne out by market analysis or changing investor trends, according to Colin Fell, investment specialist at the King Sturge Leeds office. Mr Fell says that uncertainly caused by dramatic UK and Far East stock market falls in the 1990s, created a property stampede in which investors gained a stake in commercial property with a view to a quick fix rather than considering the longer term returns.
He said: "Mistrust of stock markets led many novice investors to commercial property because it was real, tangible and, on some levels, could be self-managed but, as a result and with the benefit of hindsight, many will have paid over the odds. This meant that the yield paid was lower than a more considered approach would have created. "At the time of the last market adjustment in the early 1990s, actuaries advising pension providers were recommending that property should represent 10 per cent of a balanced investment portfolio, but this has now risen to 20 per cent and today's investors have a more balanced, long-term approach to property investment.
" Mr Fell said that the lessons learned from the last property investment cycle and the more balanced approach created by updated pension portfolio advice creates an opportunity for wider, long-term involvement. As a result, many of the problems created by overpaying for property investments have passed and the Yorkshire market can now be driven by real rental growth. The main market adjustment in the next few months, he says, will not result in a "topping out" in the market, but will address changes in the yields from prime and secondary locations as there is currently little differential between those in prime areas, such as central Leeds, and market towns, such as Skipton and Ripon.
"Prime shops and offices in Leeds, such as Bridgewater Place, are commanding yields of between 4.75 per cent and six per cent, compared to a shop in Selby which recently sold at 5.5 per cent, a shop in Halifax which sold at 5.
75 per cent and a shop in Skipton for five per cent. "The difference in yield is negligible and this is where the real market adjustment should take place to reflect the widely varying rental growth prospects in the different locations. "In the past, property investors may well have invested in one property – such as a retail unit in Selby or Halifax – but changing investment trends, more sophisticated portfolio management and new syndicated investment vehicles means they can spread their investment across different properties, including the prime locations such as central Leeds.
"This is likely to bring more realistic, long-term investors into the Yorkshire property market which is healthy for all those involved." THE combination of rising interest rates and a balanced approach from investors will lead to healthy growth in the Yorkshire commercial property market over the next year, says a Leeds investment specialist.
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