October 2016 :: Case Studies
Buying Rather Than Leasing Office/Warehouse Factory Space.
Given the ongoing low interest rates, more industrial property tenants are considering purchasing a property rather than leasing one.
Given the ongoing low interest rates, more industrial property tenants are considering purchasing a property rather than leasing one.
This is not surprising because, in some cases, interest can be half the amount of rental.
That’s a fairly compelling argument but it’s not that simple. Banks are wary of industrial property. Some say they will loan 70% of the property value but, in fact, it’s 70% of their own bank valuation. Bank valuations for mortgage purposes seem very conservative to many people, and buyers are telling us that it effectively means banks will loan about 50% of the true market value.
That’s a high equity bar for most people and might be the only real reason why some properties are not sold. It’s interesting to note that companies are keen to buy due to low interest rates. However, many vendors are reluctant to sell because they have very few alternatives to reinvest that offer yields as high as industrial/commercial property investment. Some vendors are happy to sell on vendor terms in the right situation to retain some return whilst releasing capital.
Reflecting on the industrial/commercial market, Atholl Williams, Director of Rutherfords Real Estate, says, “As agents, possibly the biggest challenge in industrial/commercial property currently is a lack of property listings for sale, with vendors genuinely wanting to sell at a market rate. We are experiencing a growing disconnect between occupiers wanting to purchase rather than lease and owners wanting to lease out their properties rather than sell them.”
