For many in the motor trade industry it’s extremely difficult to operate without a large premises. Whether you’re a mechanic who needs garage space for three or four motors at a time or a salesman with a large forecourt, an essential part of your business will be your property.
Typically, those operating motor trade businesses have had to take a considerable risk through ownership of their property and, unfortunately, you can’t protect yourself against property price fluctuations through your motor trade insurance. However, according to a report from chartered surveyors HSM, property yields from motor trade properties have strengthened to pre-recession levels.
Good News for Renters
The HSM report concerns primarily renters and claims that property yields from investment in motor trade property is now around 4.75%. This is the highest market level in around seven years, with yields in 2007 just sinking below 5%. It’s also expected that property yields will remain stable over the coming months, which is a good sign that motor trade properties are performing well for renters and that the market is coming towards an equilibrium. Excessively low rents or continual year-on-year growth are both signs that the market is not performing as it should.
Motor Trade Owners
While higher yields are great news if you’re someone who has invested in a property that’s currently being used in the motor trade, if you own your own premises it won’t necessarily mean that you will make more money. Yields are only determined by rental income, and as such it’s not going to impact directly on your profits and losses if you own your property.
However, it’s important to remember that if property yields increase property values are also likely to be increasing. This could have an important impact on your balance sheet, and it may be worth getting a property valuation to ensure your accounts are correctly reflecting the value of the property you have in your books.
Confidence in the Motor Trade
An important side-effect of increased yields in the property market is increased confidence in the motor trade industry. This is great news for investors who have already staked money in the market itself, but it’s also likely to be good news for the motor trade as a whole.
Good market confidence should mean that banks, investors and other lenders are more likely to put their money into the motor trade industry. As most motor trade businesses run with very a high level of capital and often don’t keep much cash in the bank, having easy access to credit is absolutely essential to motor traders.
General Property Rises
While yield rises are definitely good news for some traders, they should be taken within the context of wider property price increases in the UK. Many areas of the UK’s economy were severely hit during the recession, and while the commercial market has taken more time to return to pre-recession levels than the residential market, the rise in yields from motor trade properties should still be taken with a pinch of salt.
The UK is set to be one of the top economically growing nations in 2014, with experts forecasting approximately a 3% increase in GDP growth. It’s not guaranteed that this growth will actually materialise, but it could continue inflating property prices.
In the motor trade industry there is a real risk that traders will be exposed to overinflated prices, and as such, it’s important to think prudently about your rental property. At the moment, it’s still a very uncertain market and it’s too early to tell whether sale and leaseback transactions are really economical as it all depends on your own personal circumstances.
A general rise in yields is good news for motor traders, and while there’s still plenty of uncertainty it’s another key indicator that confidence is beginning to return to the motor trade industry. While some areas were certainly hit harder than others during the recession, an increase in yields shows that rental investors are prepared to put their money behind the success of showrooms, garages and repair shops and this can only be good news for motor traders and the industry.