Looking to invest in commercial property via your pension?

New rules governing pensions have sparked a rush to invest in commercial property. Here, we offer advice on where to find the best deals

New rules governing defined contribution pensions that now allow anybody over the age of 55 to receive a retirement income from property investment has sparked a lot of debate about how ‘granlords’ could dominate the buy-to-let market.

But East London estate agents report that more people are taking advantage of these pension freedoms to invest in commercial property, rather than the residential buy-to-let market.

And investors are already seeing greater returns than banking their pension pot or taking an annuity.

Rental value growth in central London office space has now reached a post-recessionary high of 9.65%, overtaking the previous peak in the 12 months to October 2011 of 7.13%.

Investment in the central London office market grew from £2.4m in in the first quarter of 2015 to £4m in the second quarter when the pension reforms came into force in April.

However, West End estate agents question whether the pension rule changes have sparked a rush to invest in commercial property. They point out that it is long been possible to invest your retirement savings in commercial property

According to the government’s Pensions Advisory Service, self-invested personal pensions – most commonly known as SIPPs – have long allowed savers to invest in…

• Stocks and shares that are quoted on British and overseas markets;

• Unlisted shares;

• Unit trusts and open-ended investment companies;

• Investment trusts; and

• Commercial property.

The Pensions Advisory Service also points out that a SIPP may be used to borrow funds required for the purchase of commercial property.

Taking a SIPP

SIPPs are an entirely portable and flexible for of retirement savings. Holders can take a SIPP with them to a new place of employment and after the age of 55 their benefits can be used for investment purposes without having to stop work.

Why invest in commercial property?

The principle of investing in commercial property is based on the twin expectations of a constant stream of rental income from letting the premises and the longer-term increase in the capital value of the property.

But to maximise the potential for such earnings, investors need to have chosen carefully the property purchased, determined the appropriate rent that can be raised and managed the efficient letting of the premises.

In each of these areas the help, guidance and support of property professionals can make or break the success of your investment – it is typically valuable assistance you risk ignoring at your peril.

Use a local estate agent

While it is predicted that the rents charged for commercial property will continue to rise for the next four years due to an increase in demand for office space, not every part of the UK – or even the property hot spot that is London – will experience the same levels of growth.

This is why a local estate agent could be your best friend when it comes to making commercial property investment decisions. Many local agents, especially those who have spent years developing a real knowledge of the area they operate in, will be aware of where the market has the potential to grow.