Shop Investment – a lost cause?
20 October 2025(2025 Oct) – I have said this before, and I’ll say it again, not in the same words, there are a heck of a lot of private investors that have no idea what they’re letting themselves in for when they buy shop property investments.
Reality hits home on renewal of the lease. The cushion, of upward-only review, the rent payable after the review is agreed or ascertained, cannot go down disappears. In its place is exposure to the full force of the market.
Worry becomes evident where the review basis under the existing lease is index-linked. For lifestyles reliant on a level of rent that only exists during the term of the lease, to find that the initial rent on a renewal lease is much lower can make a substantial difference to investor financial security. Millions of GBP, lured into SIPPs by tax relief, lost.
From a surveyor’s persective, we deal with what is and the evidence. The real challenge is in managing client expectations. In my opinion, we wouldn’t need to if the client were better informed to begin with. But informed advice competing with popular thinking is heavy-going. I have had clients argue that what I am saying does not make sense in the context of what everybody else is doing. Long ago, one client in particular said he would never buy anything if he took my advice. A consequence of that remark is that nowadays anything I say when my advice is sought is introduced with that warning.
Specialising in rent review, one becomes sensitive to the subtleties and nuances that make a difference between a prudent and foolish purchase. Many private investors buy on yield compared to putting the money on deposit at the bank. Yield is a reflection of market sentiment at the time. Except for high-yielding investments that are obviously ex-growth, yield is not a determining factor for whether the property would make a good investment. In the same way there are thousands of quoted companies on the stock market that are very good businesses, relatively few are good investments.
Inexperienced armchair investors can spend their money on whatever they like. But going into a marketplace which they have no proper understanding of what it’s all about, let alone the terms and conditions of the lease, leaves them exposed to the high risk in loss of irreplaceable capital.
If you buy a 6% yield, then that equates to 16.67 years purchase, almost 17 years before you get your money back, during which time anything can happen. The structural change in retailing, on-going unabated for years, isn’t suddenly going to revert to its level playing field. The cliff edge is crumbling into the sea. Attracting retailers are withdrawing, taking customers with them. Institutional investors pruning portfolios of everything that has gone or will be going ex-growth.
Property’s reputation as a long-term hedge against inflation only applies to judicious choice. For everyone else, it’s a lost cause.
Return to Article