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Prices of property – Commercial Property clearly linked to growth

Clearly commercial property does not operate in a vacuum. The fundamental factors in occupier demand for commercial property are tied directly to employment growth (or decline) and the level of consumer spending. Over the years experienced IFA’s like Enable of Bishop’s Stortford have also seen that there is a strong historic relationship between rental income growth and GDP growth.
In addition, commercial property tends to reflect local market conditions including available supply and the characteristics of individual buildings themselves, as demonstrated by the outperformance in 2011 by central London markets, both office and retail, in comparison to the wider UK.  Investors need to be aware of these fundamentals and some say investors “cannot rely on a yield arbitrage play against emergency gilt yields as a means of achieving sustainable investment performance. The margin, or risk premium, at the present time should be seen as a buffer against a weak economic outlook which will be tested, severely, in the short to medium term.”

In the past experiences IFA’s like Enable have seen returns forinvestors in Commercial properties because rental income payments from tenants have, historically, been protected by long lease terms, upward review clauses and over-renting, where the contracted rents tenants are obliged to pay exceed the open market rental value at the time. During periods of economic weakness however, the market, logically, re-prices tenant default risk and growth prospects. This feeds into more volatile market rental values and capital values. Enable Independent Financial Advisors can help you review your portfolio.

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