More deals on secondary stock than prime this year
Yorkshire’s secondary investment properties will attract an increasing proportion of the region’s capital in late 2011 as the supply of prime stock further diminishes.
There will be more deals involving ‘riskier’ secondary stock during the second half of the year despite poor forecasts for rental growth because higher yields are achievable and investors remain reluctant to sell prime assets.
Some secondary investments can return yields of around 7.5% or more (prime stock yields sit around 5-7%) if they have true asset management potential such as possible lease re-gears or vacant units to let, however 'truly' secondary stock with no such potential is expected to fall even further in value due to stagflation.
In one such example, Ryden recently sold the freehold of the United Carpets & Vets for Pets on Easterly Road in Leeds to a private investor. The property had an average unexpired term of 10-years and a low passing rent of £79,000 per annum. The £900,000 purchase price reflected a net initial yield of 8.3%.
Canny Yorkshire investors are expected to concentrate more of their capital on secondary stock during the second half of 2011. It is a higher net yielding sector as lower property prices reflect the risks involved in buying properties which tend to be situated in outlying areas or require refurbishment. However, properties that have true asset management potential can present excellent investment opportunities.
Stock selection is absolutely vital, so the process is about getting back to property fundamentals, such as location and local occupier markets. Public perception about property as a weaker asset class in the current climate isn't truly accurate; there are good value opportunities available for those who are in a position to take them.
Demand remains strong for prime well-let properties, such as convenience store investments due to growth in capital values because of the lack of supply.
For more information on the Yorkshire investment market contact Matthew Edwards on matthew.edwards@ryden.co.uk or 0113 386 8823
