The fast-approaching pension reforms which will allow people to draw cash from their pension fund and spend it how they see fit are causing some concerns. Many fear people will take advantage of these new regulations and tax incentives to draw down billions of pounds from poor-performing pensions and then spend that cash unwisely.

Deciding how best to invest your pension money can be a minefield, but many will be looking to put that money into property.

Property is performing well and we have seen unprecedented amounts of cash invested in commercial property over the past 12 months because of huge double-digit annual returns. The residential property market is seeing decent growth and that will also be attractive to savers who are being held back by meagre interest rates with no prospect of increase.

However, individual property investment does have one major drawback. It can be very difficult to unlock that cash when you need it the most and, if you don’t have the experience and insights needed for property investment, it can be a lottery.

Alternatively, syndicated property investment can be a sound bet for people looking to invest their pension elsewhere. Not only does it give you access to a wider pool of properties, but the choice of which property to invest in is entirely yours rather than handing control of your investment to a discretionary property manager. Each purchase is thorough researched with all the necessary due diligence being made available for investors to review and form their own opinion. Here I’ve listed five reasons why you should consider investing your pension in a syndicated property fund.

1. Spreading the risk of your pension investment

By joining a syndicate you can invest your money in multiple properties, which helps to spread any potential risk of tenant default which is one of the main risks with any commercial property investment. The minimum investment is £25,000 and that means you can choose to invest your pension cash in a wide variety of different properties. There is no maximum, but typically people invest around £150,000.

As an added bonus, each property is independently managed, valued and the legal title to the property should also be held in the name of an independent Professional Custodian Trustee, ensuring that the property is protected even if the investment manager ceases to exist.

2. You can sell or transfer your share in the property at any time

With individual property investment, your pension money will be tied up in the property until you can sell it. At best, that means a two month wait for your money should you need it. In reality, you will probably have to wait at least a year to sell the property and get your pension fund cash back.

With syndicated property, an investor can sell at any point and the syndicate as a whole can also decide to sell the property with a 75 per cent majority vote.

Typically, in our case, a holding is sold to another syndicate member or another member of Rougemont’s qualifying High Net Worth client base.

Ideally, syndicated property is a five-year investment, but should you wish to sell, a typical syndicate sale takes just three weeks and Rougemont as the operator of each syndicated property is authorised to assist with this role.

3. Average annual returns of 6-7 per cent on your pension money

With interest rates having been anchored at 0.5 per cent for years and the threat of a further cut now on the cards, savers have been heavily punished during the recession. As a result, most are now looking to take control and find the best returns they can for their pension fund.

Syndicated property investment delivers average returns of around 6-7 per cent and Rougemont Estates is delivering better returns than that.

Each investor receives a quarterly income from the property and also benefits from any potential growth in value of the building.

Total returns on commercial property last year hit 19 per cent and, while it’s unlikely to be as high again this year, investors will still be able to expect double-digit returns when factoring in both income and capital growth, providing they invest in the right property.

4. Syndicated property returns are tax free and offer long-term growth for pension savers

Around half of all investors in syndicated property are using cash from their pension funds as any income or capital gain from the property into their pension is tax free, which is obviously a real benefit.

A typical investor is 45-years-old and is seeking a secure, long-term income that offers the prospect of medium to long-term capital growth. Depending on their age and profile, we find most investors simply don’t want the hassle of playing the equity market every day or having ownership of a single property where all their ‘eggs are in one basket’ and they have to actively manage the property.

5. Pension investors get expert insight and guidance

Perhaps the biggest benefit of investing your pension money in a syndicated property investment is the knowledge that you are getting expert advice and quality investment prospects.

Rougemont Estates minimises risk in this sort of investment by drawing on their years of knowledge and buys properties in prime locations that offer strong prospects for growth through lease renegotiation or property conversion. Rougemont offer the opportunity to it’s High Net Worth audience by way of a detailed investment prospectus. The decision of whether to invest is then up to each investor. Rougemont does not have discretion on any investors funds.

We aim to buy bullet-proof assets. There is still a significant lack of quality stock out there and investors have to be careful.

However, we are confident. We look to operate in a niche area, picking up properties that are too expensive for individual investors but that are too small for the big institutional funds.

By turning to a syndicated property investment company, you can invest in properties in prime locations that benefit from long leases or offer strong prospects for lease renegotiation, rental growth or conversion to an alternative use.

For pension savers, we feel there are some real areas of opportunity within the prime and secondary market where they will be able to benefit from acquiring quality assets that present a real opportunity for growing their cash for the future.

Welcome to the first Investment Insight from Rougemont Estates. Through these updates we aim to provide an overview of the property investment market, pulling together data and research from a range of leading organisations and sharing our insights. Please note that this information collated and illustrated does not constitute investment advice and the views expressed are purely those of the Directors of Rougemont Estates.

These regular updates aim to help you develop your own strategy for investment and will deliver clear independent research on what you can expect from the commercial property market in the months ahead.

Throughout this Insight document we have provide URL links to the source of our commentary.

Investor appetite growing

Our first look at the commercial property investment market is all good news. This year has been about recovery from a long and painful recession and investors have flooded back into the market, looking to cash in on quality assets that deliver substantial yields.

Knight Frank’s latest market update shows the total investment volume for 2014 hit £3.1bn by the end of Q3 – the highest total for six years. That insatiable investor appetite is being fuelled by a strengthening economy and a strong outlook that is helping to boost the optimism of business leaders across the country.

The huge pool of capital from overseas investors and major funds here in the UK shows no signs of subsiding and the only thing holding back the avalanche of cash is the dwindling supply of quality stock.

2014 has seen all of these funds looking to the regions for quality deals and that, coupled with businesses returning to expansion mode, is delivering strong rental growth and the tightening of occupier rental incentives – all good news for existing landlords.

Property yields are stable

Dwindling supply has seen yields continuing to fall over the summer and hence prices rise. Cushman and Wakefield’s latest research shows that prime is down 7bp to 5.1% and secondary is down 17bp to 7.8%. However, gilt yields have also fallen in the past quarter meaning property’s advantage over bonds has edged up once more, ensuring commercial property investment continues to be one of the most attractive options for investors.

Savills research shows that yields are stable, meaning we are close to the bottom of the yield cycle, and yields will remain close to the historic lows into 2015. The same research shows that the all property return for 2015 will be 12%.

Couple this with the recent volatility in the equity markets, it is understandable that property continues to be a realistic and popular choice for investors.

Alternative investments

The appetite for quality stock has once again started to see the return of speculative development in almost every region of the UK, but the majority of these new developments will take two years to complete. What that means is investors are now turning to secondary markets or alternative property investments like healthcare, hotels and renewables.

JLL’s alternative property survey revealed that 90% of investors are planning to increase their exposure to alternative property sectors, while 9% will increase their allocation for alternative investments from 23% to 32% over the next five years.

What this means is investors will have to work harder to find solid returns and many are looking to the regions where they hope to find well-located stock with the potential for active asset management.

At Rougemont we minimise risk by buying properties in prime locations that benefit from long leases or offer strong prospects for lease renegotiation, rental growth or conversion to an alternative use. This strategy continues to deliver average annual income returns of 6.5-7 per cent, plus all the potential for capital growth. In 2015 we feel there will still be areas of opportunity within the prime and secondary market where our clients will be able to benefit from acquiring quality assets that present real opportunity. However, due to an increase in competition clients may have to become more realistic on their annual return expectation in order to capitalise on secure medium term growth prospects.

Rental growth will continue

Looking ahead into 2015 we believe it will be more of the same. We will continue to see growing occupier demand and that will fuel further investment demand. Rents will continue to grow throughout the year – Savills predicts five years of rental growth. This will no doubt see an increase in investors risk profiles and we are already seeing acquisitions being undertaken that factor in considerable hope value.

While vendors may be getting a little ahead of reality in terms of pricing, the pricing in the regions should stay stable for the next six months. However, opportunities will still continue to emerge from the distressed banking sector as values improve and bank managers become increasingly under pressure to return the default loans they have been managing over the last 5 years.

Perhaps the biggest question mark for 2015 will be the General Election, but I believe it will have little impact on the commercial property investment market.

The recent Scottish Referendum failed to derail the market and, historically, elections have had little impact on investor appetite. Indeed, the stable nature of British politics has long been a draw for overseas investors.

While the liquidity of direct property ownership can sometimes be seen as a drawback, it can also be a strength. Unlike other liquid assets, property does not react quickly to opinion polls or political instability and, because our major political parties are so similar, the election will have little impact, regardless of the outcome.

Overall, competition will continue to be fierce in 2015 and I also expect to see the Institutional Funds playing a bigger role next year as investors deploy further funds in property.. The outlook is good for existing landlords and likely to be competitive for new investors but opportunities will present themselves.

After adding £10m of new acquisitions in the first half of 2014, taking the Rougemont Estates portfolio to £40m, managing director James Craven talks about finding “pockets of value” for investors in the syndicated commercial property market.

The commercial property market is once again thriving and we are seeing big increases in occupier demand alongside a renewed appetite and rising confidence among developers. This is also resulting in renewed interest among both domestic and international investors who are looking to cash in on the resurgence of the commercial property market following the pressures of the economic downturn.

For high-net worth individuals looking for solid investments in commercial property this can cause significant challenges, but there are still some pockets of value around the country. As the market has recovered over the past year, we have still been able to find investment properties that continue to deliver income returns way above the norm.

Commercial Property Investment

This year our investments have included a £6.5m whisky maturation warehouse in Edinburgh and a £1.5m property in the heart of York. We’re also currently closing a £6.6m deal for a prime retail unit in St Helier, Jersey.

The whisky warehouse, near to Edinburgh Airport, is backed by drinks giant Diageo on a 15-year lease. The whisky market has grown 80 per cent in the past decade and the warehouse has scheduled increases in rent, delivering an 8.75% per annum return that is paid to investors quarterly.

Stamford House in York is home to the law firm Lupton Fawcett Denison Till. The property delivers a 10 per cent per annum return and has great potential for future growth.

We moved quickly on these deals because of the potential they offer our high-net worth investors and the next deal we’re chasing in Jersey is another deal that will deliver similar returns. We wouldn’t typically consider retail investments as many UK High Streets remain fragile, however, Jersey is an island with one high street, a queue of retailers requiring a presence and a captive market. That all adds up to a solid investment.

Strong income returns

While it’s true there is fierce competition from major institutional funds, we are confident of buying more quality assets for investors and continuing to deliver income returns of up to eight per cent per annum – compared to the one per cent you can usually expect from the mainstream banks.

There’s more confidence back in the market and tenants are beginning to commit to longer leases. We are also seeing a growing appetite among high net wealth individuals for this type of investment.

With this type of investment there is a huge difference between the return on a Government gilt, which is typically 2.5-3 per cent. Commercial property is delivering average returns of around 6-7 per cent and we are doing better than that.

Minimising property investment risk

Risk in this sort of investment is minimised by buying properties in prime locations that offer strong prospects for growth through lease renegotiation or property conversion.

We aim to buy bullet-proof assets. There is still a significant lack of quality stock and you have to be careful, but we are still confident. We look to operate in a niche area, picking up properties that are too expensive for individual investors but that are too small for the big institutional funds.

The big funds are coming in with such an impetus that they are driving up prices by competing amongst themselves. We don’t wish to play on their ‘pitch’ and consequently have been finding value in alternative property assets such as the whisky maturation warehouse and the current Jersey offering.

Confidence in future of property

We are being careful and selective. Syndicated property investment still offers a good, long term, predicted income stream above market level. Interest rates will be slow to recover and we are way ahead of what the banks can offer.

While many are still wary of syndicated commercial property investment, for the right investor, this is a sector that can deliver solid returns and rising confidence in the market means the opportunities are continuing to grow.

We are confident about what lies ahead for commercial property and I’d welcome your thoughts on what you expect to see in the months ahead and whether you think investor confidence will continue to rise.