Rise in Property Investment Insolvencies

Do you invest in commercial property?

According to new research, the number of property investment companies becoming insolvent rose 8% in the past year, and increased from 154 in 2011 to 346 in 2015.

This seems to be due to the rise in property prices, higher occupancy levels and rental increases for offices in London and the South East.

Savills estate agents report that rent for West End office space rose by 21.6% in 2015, while occupancy increased by 58%.

The rise in asset values has been driven by international investment. During the first six months of 2015, 70% of the total investment in commercial property in central London was from foreign investors, totalling £9 billion.

According to Savills, investors are from the UK, Middle East, US and Asia, particularly Taiwan. Chinese investment represents 11% of the total, despite their slowing domestic economy.

During the recession, banks were reluctant to put property investment companies through insolvency procedures in case it further depressed weak property prices.

But now, banks have begun recouping the value that has been tied up in bad debt since the credit crunch, by having investment companies sell their assets.

Crystal ball time

Savills predict that UK GDP growth will remain at about 3% during 2016, and that investors will continue to be selective, looking for a secure income stream or rental growth.

They say prime and average London office and retail space will continue to deliver strong performance, but the pace of growth in the City and West End may slow over the next few years, with emerging markets including Croydon, Brixton and Stratford.

Outside London, they expect retail growth to be higher than recent years, while still lagging behind office and industrial units.

Rents should increase for new-build and refurbished offices in regional markets.

Due to dwindling brownfield land within the M25, and relaxation of permitted development rights (which could give the option to convert to residential), urban industrial estates will continue to perform well.

There was massive growth in the distribution warehouse market in 2015, and Savills think that rents for logistics space will continue to improve, although probably not at the same rate.

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