Investing in commercial property/land

thegentleway

Looking at buying an industrial unit, one of which comes with 0.75 acres. What's the average capital appreciation on industrial units and land? 

wmb194

thegentleway said:

Looking at buying an industrial unit, one of which comes with 0.75 acres. What's the average capital appreciation on industrial units and land? 

Judging by the recent performance of commercial REITs on the stockmarket I'd say that at the moment it's negative. You could just fish for value there and spread your money over lots and lots of properties. Directly buying one of your own exposes you to massive amounts of specific risk and liquidity issues.

thegentleway

wmb194 said:

thegentleway said:

Looking at buying an industrial unit, one of which comes with 0.75 acres. What's the average capital appreciation on industrial units and land? 

Judging by the recent performance of commercial REITs on the stockmarket I'd say that at the moment it's negative. You could just fish for value there and spread your money over lots and lots of properties. Directly buying one of your own exposes you to massive amounts of specific risk and liquidity issues.

Indeed, I appreciate the specific rick and liquidity issues but I have a business and considering buying industrial unit instead of leasing. I'd have to sell some of my investments to finance the purchase so trying to work out if it makes any financial sense. 

jimjames

That's quite a difference perspective if you're intending using it yourself. As well as the lack of rent to someone else you also have more security owning it so there are also non financial issues to consider too.

thegentleway

jimjames said:

That's quite a difference perspective if you're intending using it yourself. As well as the lack of rent to someone else you also have more security owning it so there are also non financial issues to consider too.

Indeed but I would like to include the financial aspect in my consideration as well but I’m struggling to find capital appreciation values for land and industrial units. 

wmb194

thegentleway said:

jimjames said:

That's quite a difference perspective if you're intending using it yourself. As well as the lack of rent to someone else you also have more security owning it so there are also non financial issues to consider too.

Indeed but I would like to include the financial aspect in my consideration as well but I’m struggling to find capital appreciation values for land and industrial units. 

I don't think you can automatically assume that it will appreciate. Location is also a factor. IIRC REITs usually say that the market in London and the south east are usually stronger than in the regions and particularly when the economy is weak.

UKCM owns commercial property and it says that it see evidence of the market stabilising after seeing big falls. Its most recent report:

https://www.londonstockexchange.com/news-article/UKCM/interim-report-and-accounts-for-the-half-year-ended-30-june-2023/16143336

https://www.londonstockexchange.com/stock/UKCM/uk-commercial-property-reit-limited/company-page

thegentleway

wmb194 said:

thegentleway said:

jimjames said:

That's quite a difference perspective if you're intending using it yourself. As well as the lack of rent to someone else you also have more security owning it so there are also non financial issues to consider too.

Indeed but I would like to include the financial aspect in my consideration as well but I’m struggling to find capital appreciation values for land and industrial units. 

I don't think you can automatically assume that it will appreciate. Location is also a factor. IIRC REITs usually say that the market in London and the south east are usually stronger than in the regions and particularly when the economy is weak.

UKCM owns commercial property and it says that it see evidence of the market stabilising after seeing big falls. Its most recent report:

https://www.londonstockexchange.com/news-article/UKCM/interim-report-and-accounts-for-the-half-year-ended-30-june-2023/16143336

https://www.londonstockexchange.com/stock/UKCM/uk-commercial-property-reit-limited/company-page

Thanks, that's very helpful. Makes sense to assume no capital appreciate as building are depreciating assets.

What about land? Surely that has a strong history of appreciating in UK?

Linton

thegentleway said:

wmb194 said:

thegentleway said:

jimjames said:

That's quite a difference perspective if you're intending using it yourself. As well as the lack of rent to someone else you also have more security owning it so there are also non financial issues to consider too.

Indeed but I would like to include the financial aspect in my consideration as well but I’m struggling to find capital appreciation values for land and industrial units. 

I don't think you can automatically assume that it will appreciate. Location is also a factor. IIRC REITs usually say that the market in London and the south east are usually stronger than in the regions and particularly when the economy is weak.

UKCM owns commercial property and it says that it see evidence of the market stabilising after seeing big falls. Its most recent report:

https://www.londonstockexchange.com/news-article/UKCM/interim-report-and-accounts-for-the-half-year-ended-30-june-2023/16143336

https://www.londonstockexchange.com/stock/UKCM/uk-commercial-property-reit-limited/company-page

Thanks, that's very helpful. Makes sense to assume no capital appreciate as building are depreciating assets.

What about land? Surely that has a strong history of appreciating in UK?

Commercial land values depend on the rent that can be charged and hence the location. They could rise or fall significantly if the surrounding land usage changes.   Planning restrictionare another factor. A brownfield site in the middle of nowhere could attract no interest whatsoever and hence be worth nothing, permanently.

Not my subject but the thought does cross my mind of whether there are issues regarding the interaction between three different “people” involved. For example does your business, presumably a company, pay rent to your pension? Are there tax implications?

thegentleway

Linton said:

thegentleway said:

wmb194 said:

thegentleway said:

jimjames said:

That's quite a difference perspective if you're intending using it yourself. As well as the lack of rent to someone else you also have more security owning it so there are also non financial issues to consider too.

Indeed but I would like to include the financial aspect in my consideration as well but I’m struggling to find capital appreciation values for land and industrial units. 

I don't think you can automatically assume that it will appreciate. Location is also a factor. IIRC REITs usually say that the market in London and the south east are usually stronger than in the regions and particularly when the economy is weak.

UKCM owns commercial property and it says that it see evidence of the market stabilising after seeing big falls. Its most recent report:

https://www.londonstockexchange.com/news-article/UKCM/interim-report-and-accounts-for-the-half-year-ended-30-june-2023/16143336

https://www.londonstockexchange.com/stock/UKCM/uk-commercial-property-reit-limited/company-page

Thanks, that's very helpful. Makes sense to assume no capital appreciate as building are depreciating assets.

What about land? Surely that has a strong history of appreciating in UK?

Commercial land values depend on the rent that can be charged and hence the location. They could rise or fall significantly if the surrounding land usage changes.   Planning restrictionare another factor. A brownfield site in the middle of nowhere could attract no interest whatsoever and hence be worth nothing, permanently.

Not my subject but the thought does cross my mind of whether there are issues regarding the interaction between three different “people” involved. For example does your business, presumably a company, pay rent to your pension? Are there tax implications?

Yes, similar to residential property but you can easily find historical average house prices and get a feel for how the residential market has performed as a whole.

I don’t pay into pension from my business because I have DB pension from my PAYE income.

Malthusian

thegentleway said:

Yes, similar to residential property but you can easily find historical average house prices and get a feel for how the residential market has performed as a whole.

But if you are buying a random residential property in Slough, historical average house prices over the whole country aren't going to tell you much about its prospects. Nothing is.
Same applies to commercial property.

I don’t pay into pension from my business because I have DB pension from my PAYE income.

In itself that is not a reason to not pay into your pension. In fact it could be a reason to do so (to reduce any tax liability caused by having business income on top of DB pension).

thegentleway

Malthusian said:

thegentleway said:

Yes, similar to residential property but you can easily find historical average house prices and get a feel for how the residential market has performed as a whole.

But if you are buying a random residential property in Slough, historical average house prices over the whole country aren't going to tell you much about its prospects. Nothing is.
Same applies to commercial property.

Good points! But on average, residential property appreciates. If you buy a nice house in a house town, you can be quite confident it will be a decent investment.

Similarly with land. I think the prospects are very good, it's 0.75 acres in town centre. Planning permission could be a issue to develop the land but I'm not interested in developing it. I'm confident land in such a good location will only appreciate. Whilst I have a feel for how much residential property appreciates, I don't for land. 

Malthusian said:

I don’t pay into pension from my business because I have DB pension from my PAYE income.

In itself that is not a reason to not pay into your pension. In fact it could be a reason to do so (to reduce any tax liability caused by having business income on top of DB pension).

Yes, I salary sacrifice as much as I can so only take national living wage from PAYE income. Thanks to the great advice on this forum. This does indeed lower the income tax on my business income.