Like a mad frenzy of Saturday shoppers at the sales, investors across Hampshire, Dorset and South Wiltshire have been grabbing at stock with all the ferocity of opening day at Ikea. And private investors are leading the charge in a mad dash to beat the deadline for self-invested personal pension plans on the so-called “A day” in April 2006.
Until April 2006, investors will be able to gear up their investments by 75% loan to value. After that, under the government’s pension shake up and bid to simplify investment guidelines, it will be a more modest 50%. They will also be eligible for tax relief, boosting investors’ spending power by 40%.
Residential is a relatively recent inclusion in the SIPPs market, and is undoubtedly taking the lion’s share of investors’ cash. But commercial property is creeping higher up buyers’ wish lists. Standard Life estimates there are 110,000 SIPPS on the market, of which around 15% offer commercial property. But it expects this figure to rise by 20% pa as investors become more interested and comfortable with holding commercial stock.
Savvy south coast investors have already turned their spotlights onto high street shops in secondary locations, and small office units.
Agents are enjoying the boom while it lasts. Jerry Vigus, associate director at Portsmouth-based agency Young & Butt, says private investors are piling into the market in a bid to make profits ahead of the deadline. Consequently, he believes any good Portsmouth office or industrial unit can achieve yields of around 7.5-7.7%. “That’s a drop from 10% from five years ago, but there is not much to gain in terms of capital or rental growth. It is purely weight of money,” he exclaims, adding: “The market is very strong, and it is very hard to find any product off-market.”
Nowhere is that more true than in the retail market. The south coasts’ sub-£500,000 market has seen a renaissance, with shops regularly achieving yields of 6% at auction.
While Julian Walker, investment partner in Vail Williams Southampton office admits to being nervous about the long term sustainability of the market, he sees no sign of activity dropping off. He points to the sale of Woolworths on Shirley High Street in Southampton as evidence that well let properties will continue to be popular. Following 12 bids on the property it was sold to a local family fetching £1.85m – representing a yield of 5.7%.
“People who have bought residential want to move to commercial. The income is secure, there is a predictable lease length and everyone wants to spread their risk,” he says.
Walker estimates that capital growth has risen to 45% over the past five years, and total returns have increased to a respectable 15%. “The yield for the sale of Boots in Shaftesbury reached 4.2%. There was a unit in Winchester which reached 4.75% about a year ago, and there is evidence that someone paid 4.1% for a Jones Lang LaSalle lot at auction recently,” says Walker, adding: “Such is the desire to invest that, in many cases, investors are not worried about short leases or break clauses or if a property is vacant.”
Bernie Cooper, agency manager at Austin Adams, agrees. He says investors are willing to give up any reversionary yield just to gain ownership of a property. “We are seeing some of the smaller retail lots with warts all over them going from trader to trader for around £350,000,” he says. “Retail is hot because of the uncertainty over rental returns in the office market.”
Winchester seems to have benefited more than most, and agents are tipping it as a continued hot spot. Says Walker: “The old market towns are particularly attractive. People like to be within one hour’s drive of their investment, and places like Winchester, Chandlers Ford and Eastley have good communications.” He describes locations, such as Sailsbury and Chichester, as “bomb proof”, with growth in these markets forecast at a steady 1-2% pa.
“Everyone knows Winchester,” agrees Rob Munday, associate director at Hammond Phillips. “It has an airport down the road, so the Irish private investors like it because they can fly over and keep an eye on their investments.” He predicts the wider south coast market will be static over the next 12 months as people assess the fallout from the general election.
However, he adds: “There maybe more growth in the secondary schemes where they are not working off zone A of £150-200 per sq ft but figures more like £50 per sq ft. Then we might get a nice reversion if rents move up by £5 per sq ft.”
But few investors are keen to liquidate their assets, and limited stock could drive some capital growth, pushing buyers to pay ever higher sums for property. Some developers have spotted a niche in the market, says Ian Power at Daniells Harrison, and responded by building small units. Their efforts, however, have been quickly snapped up.
Heritage Business Park at Gosport is one. Developer Favergill built 30 units of around 2, 500 sq ft, a third of which have been sold to local investors, says Power. Rents of around £7.50 per sq ft reflect respectable returns of 7.8%. “It will be sustained growth over time, but nothing spectacular. But it will realistically outstrip inflation.”
But while it is all good news at the moment, could agents be on borrowed time? Power believes so. “People are very aware of the SIPPs deadline, and it is driving activity,” he says. “It is a complete flood, but what happens when that tap gets turned off?”
That is a question many agents are asking. SIPPs account for around 40% of the sub-£500 000 Portsmouth private investor market, believes Stuart Mitchell, managing director at Holloway, Iliffe & Mitchell. “The SIPPs investments probably will be a short term artificial blip in the market,” he says, but he warns it will probably get a lot hotter before it cools. “Solicitors are advising people to take the leap now, because if they leave it until three months before April, the market will be full.”
ISLE OF WIGHT
Demand for industrial units on the Isle of Wight shows no signs of abating. Jeremy Gully of island-based agency Gully Howard, says that not only is the market very locally based. It also embraces investors with a lot of local knowledge.
“A lot of property people coming here to sail have a second home on the island, and they love the idea of having a property they can come and do an inspection on,” he says. As a result, yields have hardened considerably, says Gully, with a well let B8 unit achieving 7.5%, and a moderate prime high street unit coming in at sub-6%. He says that, over five year, capital values have doubled.
Rental income is also healthy, says Gully, with industrial units achieving up to £6.50 per sq ft – up 30 % on five years ago.
