This spike follows some obvious contraction in the residential BTL market after various government regulation and legislation, and a shifting political landscape. Changes to rules around mortgage interest tax relief and stamp duty — as well as a PRA-led intervention about what constitutes a portfolio vs non-portfolio landlord — have led to several clear outcomes in terms of the wider BTL space. While these changes have had what we would view as the desirable effect of tidying up the industry by placing activity more within the realm of the so-called professional investor, it seems that the ‘amateurs’ may end up back in the game if the long-term pricing outlook is to be believed. Broadly speaking, with further challenges and regulation coming into this space, making it an ever more professional environment, there will naturally be more cost for landlords to absorb, and with rental yields nearing a ceiling, the shift to other asset types is proving to be a prudent step for professional investors looking to maximise yields.
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Data shows that the commercial property market remains fundamentally resilient in terms of both yield and capital growth. Despite investors adopting a wait-and-see approach, we believe many are stockpiling cash and simply postponing activity until we have a definitive Brexit outcome. With the long-term view and fundamentals of the commercial property market still compelling, we may well see what we have come to call a ‘post-Brexit binge’ from those professionals looking to utilise the cash they have stockpiled in order to take advantage of investment opportunities in the post-Brexit landscape.
While there are many moving parts across the relevant sub-sectors that comprise the commercial market, with professionals hell-bent on sweeping up deals post-October in the wake of price compression, the associated spike in activity could well see the return of the previously sidelined amateur investor. Potentially good news for the broker community as this would naturally precipitate a need for advice around an asset class that is inherently more complex. Smaller landlords who have been hurt by the changing regulation may well jump on this bandwagon as they look for value and a diversification away from their bread and butter in favour of more stable and higher-yielding assets.
Cleary the impact of Brexit is unpredictable outside of the standard uncertainty commentary, but the trend data supports this view and suggests that there is opportunity to grow. However, clearly this does not mean that commercial assets will automatically generate good returns — particularly in the short term. As we have always stated, longevity and sustainability of market is key and those investors that work with experts across the lender and broker spectrum will be best placed to take advantage of the future value that presents itself.