Dr James, 1m 43s:

Guys, I can't leave unstack here saying that I haven't shot a podcast on commercial property in 450 odd episodes in this podcast yet. Here we are, and I think it's about time that we ride that wrong. And that's when I'm joined today by commercial property expert, Mr. Alasdair Irvine. We're here to talk about commercial property when it makes sense, the pros and cons, and when it doesn't make sense as an investment opportunity. What's hot in 2026 and beyond, this is gonna be an immediate episode as ever, so I'm certainly looking forward to it. As ever, you can claim your CPD for this episode within the official Dentists Who Invest Smart Money Members Club. Smart Money Members Club also includes multiple mini courses and webinar series on finance for dentists, including how to become as tax efficient as possible, as well as understanding investing. All of this content counts as verifiable CPD, and you can download your certificates there and then upon completion of each lesson. In addition to this, we also include a whopping 10% discount on your dental indemnity and a 5% discount on lab bills for dental principals, amongst other perks and discounts for members. Please use the link in the description to claim your verifiable CPD for this episode Alasdair, welcome to Dentists Who Invest podcast. Very excited about this episode, commercial property, because we've never done this, and that's been in part because I've never actually really found somebody who is uh how can I say this, as qualified to speak on it, I guess, really, uh, as yourself. So, what this conversation today is going to be, it's gonna be very high level. We're not gonna really get into the technicalities and specifics of it. It's really just allowing everybody to understand when it can make sense so we can pull that out of the ethereal, pull that out of the abstract, and allow people to make decisions from a place of clarity. And on that note,Alasdair, maybe it might be nice for you to do a little bit of an intro to the audience today.

Alasdair, 3m 37s:

Thanks, James. Yeah, so guys, I'm Alasdair Irvine. I uh I'm a chart surveyor and I've been in property, involved in property since 1990, and on the property owning side since 2002. So uh have I've been through the the good and the bad of commercial property over that piece throughout the UK. Um hopefully I can add something today to help you out on your quest.

Dr James, 4m 0s:

Yeah, I'm sure I'm sure you'll be more than able to do that. Looking forward to this. So, yeah, let me see here, Alasdair. So I think a good place to begin would be to dissect property in general as an investment opportunity versus other assets like stocks, like bonds, like your traditional ISA, your traditional pension, everything along those lines. So we're discussing it as an asset from a high level, and then we can get into residential versus commercial because that's a little bit of a an old chestnut, really, uh, in property developers, I believe, or sorry, property investors rather, I believe, at least it appears that way from the outside looking in, but you might have something to say on that. So let's talk about property first. Why are you a believer in property as an investment asset versus other assets?

Alasdair, 4m 52s:

So let's let's say it's it's not you should be in commercial property alone, it should be part of your portfolio. So if you're looking at cash that you're looking to invest, you should be looking at probably three different policies you've mentioned there, James, and one of those should be commercial property. Should you go and see a financial advisor, most financial advisors won't put you down the route of commercial property, and they won't put you down the route of commercial properties because they don't make a fee from it, which is the completely wrong way to look at how best to advise somebody to invest their cash of money. You're obviously not in that same camp. James, I understand.

Dr James, 5m 29s:

Yeah, that's correct. I mean, I think it's just about weighing up every asset and making a decision on it. And you know what? I mean, uh on that note, I uh I'm probably quite far along that scale because I'm actually pro-crypto. Uh, whenever somebody uses that in the right way in their portfolio and doesn't do anything too ridiculously out there or uh invest in anything too outlandish in that space, obviously with small measured amounts of capital. Uh, but you can all these things have a place, it's just about knowing how to do it. And as you say, you know, financial planners really do have their place, they can do really, really, really well from somebody, especially from a planning perspective. But you just have to weigh up to yourself what is this person incentivized to get me to invest in, and does that align with my goals and objectives? And the more you can educate yourself, well, the better you can make those decisions. Although, having said that, it's really interestingly the more avant-garde uh commercial or sorry, uh financial advisors out there nowadays uh actually have things set up that they're no more incentivized uh to get you to invest in stocks and bonds versus other uh assets. Uh that's usually because they go in the total value of the portfolio, not just your AUM. Although it's quite hard to find those. They're they are they are uh they are they they do exist. Uh for example, shameless plug, but we do actually do that at Vidare financial planning where it's not your AUM, it's the whole entire value of your portfolio, so there's no clash of interest there. But yes, you are quite right, Alasdair. The vast majority of the time they're not incentivized. They're incentivized to get you purely in stocks and bonds, which are not always the best asset for you. Uh so yes, circling back to what we were saying a second ago, what are you what are your what's your mindset, what's your philosophy whenever it comes to investing in property? What do you see as the pros or the advantages versus other asset classes?

Alasdair, 7m 17s:

So perfect property should give you safe return on your cash, it should give you capital appreciation over the period, and it's really a question of how long you want to stay in through that journey. If you're just in for a year, you're probably not going to get much a capital appreciation. You will get a good return, and your good return should be anywhere in the 7 to 10% on your money. But as long as you're using this as properly strategized, it's a good place for your money to be for the longer term. The con is opposed, it's probably it's it's not as liquid as going into the stocks and shares, but this makes up part of your portfolio, it's a very good return.

Dr James, 7m 59s:

And you know what? One thing I'd like to jump on, which we were talking about before we came on this podcast, Alasdair, was that figure you quoted by way of return, what is that composed of? Because everybody knows, and I'll go to the I'll go to the example of stocks. Well, well, I should I say everybody, but to be fair, a lot of people are maybe not necessarily aware of this. The the SP 500 is quoted as being able to return 10% year on year on average-ish. I think it's like 9.8 if you go back to the 1950s, whenever it was founded or first created. Uh, having said that, in more recent years, it's maybe been like 11, 12%, something along those lines. What people don't actually understand is that 11, 10, 11, 12%, whichever figure you choose, is actually composed of two figures. First being the actual appreciation of the stock itself, as in how much does the value of the stock grow. And the second being the dividend yield on the stock. So the total return is like 10%, of which usually 4%-ish is going to be capital appreciation, and maybe 6% will be uh the dividend. Actually, sorry, a big part, I've just misquoted myself there. Usually it's the other way around. 6% capital appreciation, 4% dividend, something along those lines. It uh it averages out as that's the real real, that's that's that's the that's the true facts right there. Uh so that figure that you talked about for commercial property, the 7% to 10% return year on year, I believe that that is purely the rental yields, and then the capital appreciation of the property comes on top of that whenever you crystallise the asset, i.e. 7%.

Alasdair, 9m 26s:

Yeah, so you're entirely right, that it is based that 70-10% is totally based on the rent you will retrieve during the course of a year. And the principal reason for that is because of the nature of commercial property and the leases within them, generally you won't see a rental increase any more than uh every three years or every five years. And that's what really is creating your capital appreciation. If you look at it in your stocks and shares that you were talking about there, James, you're you're seeing the shares traded on a daily basis, which brings the value up and down. Your property value isn't really going to go up and down any great amount unless there is complete market change. A war in Iraq, for example, that's not very good for some property that's very quickly brings the value down. But it's generally going to be led by the rental and growth of rental. So the more you grow the rent, the more you'll see the capital growing. So if we're looking at a blended to compare with stocks and shares over a five-year period, you should be looking at probably something in the order of early teens year on year, once you brought the capital appreciation in at the end of it.

Dr James, 10m 31s:

Although correct me if I'm wrong on this, uh, but that seven ten percent figure is not necessarily net of the repayments that you will have on your debt, correct? So that assumes that we buy the property outright. Is that fair to say? So yes and no.

Alasdair, 10m 49s:

So if you've got so if you've got no debt, let's make it nice and easy. We bought something for £100,000, we get £8,000 a year. No debt, 8% return. Dead easy. With your £100,000, however, you can comfortably get debt of another £100,000 to give you £200 property. You're now getting £16,000 return. So by bringing debt in, you actually increase your return. The cash in your hand is different because remember that's £16,000 on your £100,000. Trying not to confuse it because that's your equity in. Because you will be paying interest out on the hundred pounds that you have loaned, but your actual return will increase on your equity. Because you're £16,000 at that point, so on your hundred thousand equity.

Dr James, 11m 44s:

So, in other words, in the first example, where you have zero debt, you're making an eight grand profit, but that's because you're making it well, you're making eight grand rental income a year. I should be careful with my words. Uh, but in the second example, you've borrowed the extra hundred thousand pounds, your prop your profit, your your your your net uh income yield drops to half, but your profit is still exactly the same, if you think about it.

Alasdair, 12m 11s:

More or less, your hundred your hundred pounds, and I was confused, I was saying hundred, hundred thousand. Let's go back to the hundred because that makes it easy. Your hundred pounds will probably cost you six percent a year to borrow. So that's six thousand. So if you're getting your sixteen thousand rent, take off your six thousand, you're now ten thousand return for your eight thousand before with no dent.

Dr James, 12m 33s:

Nice, even though your net rental yield drops, you're still making more money in asset. Yes, yes, yeah. Wow, what a well, it's true, it's just never thought of it like that. Okay, wow, fascinating.

Alasdair, 12m 45s:

And that's your that's your ten ten 10 pound return on your 100 pound equity, so you're now up at 10% without any capital appreciation.

Dr James, 12m 53s:

Ah, right, right, right, right, right, right, right. Okay, yes, I see. I never thought of it like that. There we go. This is where we have uh experts like yourself for the podcast, right? Because the the answer is elucidated like that, and uh it's uh it makes complete sense. I just never really thought about it before. But okay, yeah, fair enough. Great stuff, great, great dialogue so far, great information. Let's move on to what we also said we talked about at the start of the podcast, Alasdair, which was residential versus commercial. What's your thoughts on that? I guess there's a little bit of a clue by the sheer fact that you focus on commercial property in your investment strategies and via what you help people with. Uh, but why, in your opinion, does that make a better investment thesis versus your traditional residential properties and bail to let's UK Dentists, Dennists Who Invest now has an official platform where you can learn about finance and obtain UK compliant, verifiable CVD at the same time. The only platform that exists on which you can do both. The Smart Money Members Club has hundreds of hours of mini courses, webinar series, and live day recordings on all things finance slash tax efficiency for UK dentists. This includes complete courses on how tax works for UK dentists, finance so that you can invest and grow your own money, business so you can improve your profitability as an associate or principal, and for those out there that want it, there's also a mini course and how you can responsibly enter the crypto space using measured amounts of capital. I've gathered this content from the best of the best I could find in each respective area so that you know that this is how people at the forefront of each field advise their clients. The Smart Money Members Club also contains discounts on common things that UK dentists need to pay for on a regular basis. This includes a whopping 10% discount on dental indemnity, the offer to beat your income protection deal no matter what you're paying, and for the principals out there, 5% discount on lab bills and 10% discount on practice insurance. These are designed to offer hundreds, if not thousands, in annual savings. The purpose of this members club is to not only boost your monthly income but also manage your outgoings as much as possible and therefore create more profit. To celebrate the launch of the Smart Money Members Club, and given that the CPD deadline is coming up soon, I've decided to offer the first month of this platform entirely for free. This offer will end in the coming weeks as soon as the current CPD cycle is up. To collect your CPD for this podcast episode using the Smart Money Members Club, feel free to use the link in the description of this podcast.

Alasdair, 15m 40s:

Probably the reason we focus on it is because the return is actually better. So what you have where the big difference is. So if I let you buy a flat, and we'll use the same figures that we're using before. £100 I bought it for, and I'm letting it to you at nine. Nine pounds a year, I'm getting nine pounds back, which is better than the ten and eight we had before. But as a residential tenant, you can ask me as the landlord to do lots of things. Your boiler breaks, I've got to fix it. If it's if the property's left, the furniture, the furniture breaks through wear and tear, I've got to fix it. If your roof starts leaking, I've got to fix it. So actually there is a cost to running that and your return of your nine pounds generally will reduce to five pounds. In the commercial world, you're letting the property generally on a full repairing and turing lease. So what that means is the tenant is responsible for not only paying the rent but the upkeep of the property. So if the roof's now leaking, it's your responsibility to fix. If your heating stops working, it's your responsibility to fix. So I'm not getting my return eroded because there are issues with the property, which is the big difference from the residential world. Um a lot of people forget when they look at the residential, they see a great return, but they're forgetting there's a cost of running that which doesn't exist in commercial. So the return actually isn't as good in residential as it is in commercial.

Dr James, 17m 7s:

Fascinating. Fascinating. Okay, and I guess the skill set to invest in commercial is probably a little bit rarer as well, which means that there's less competition. Would you is that fair to say or no?

Alasdair, 17m 23s:

I wouldn't say there's less competition. There's less in terms of people coming into the market to look at it, there's probably less competition because the entry price in commercial is probably generally higher than you have in the residential. You can get into residential for under £100,000, and it doesn't really matter whether it's £100,000 or a million, you're still letting it to an individual in commercial property. If you're £100,000, you are probably letting it to an individual, but it's a fairly poor individual, and actually the lease is almost irrelevant because they probably don't have the funds to do the repair as we talked about earlier. But once you get up to probably a quarter of a million and above, it's a it's it's a quality tenant you're probably getting who is going to give you the return and the security that you're not getting out your million pound flat.

Dr James, 18m 13s:

Right, understood. So there's a little bit more of a barrier entry by way of finances, financially financially. Uh is it also fair to say, and I know you've you have mentioned this already, but just to kind of really stipulate this, that as a general rule of thumb that you get less hassle out of the tenants uh in commercial versus residential?

Alasdair, 18m 39s:

Yes, pretty definitely. There's there's the there's no doubt about that whatsoever. We have I currently look after 140 different properties with 555 different tenants, three of which are residential. And they're the biggest pain in the ass out of our portfolio, which is 150 million of property.

Dr James, 18m 58s:

There we go. Okay, cool. So that is that is worth remembering as well because I know the number of friends who I have who are in property, and if you call it, they take exception to to you whenever you refer to it as passive income because they see that as somehow diminishing the level of effort they put in just to keep everybody flipping happy by the way of their residential tenants. Uh so I think that they are probably experiencing that exact phenomenon that you're referring to there.

Alasdair, 19m 28s:

Yeah, if you if you go if you go into commercial property, you buy a unit link to Mark suspenses for 10 years. Pretty much all you'll do in 10 years is send four rental devices a year. Because the rest will take care of itself.

Dr James, 19m 42s:

Which is which is where you want to be, because they're they're businesses, right? And there's so much more they have to think about uh well, they have they have more money as a general rule of thumb as well, uh, of course, because they are a company and uh well they're leveraged, obviously. Uh but then as well as that they have to think about the profit, you know, they they want to preserve their business, so therefore they're more likely to pay you. They're not just gonna uh jump ship and move on to the next house, I suppose.

Alasdair, 20m 11s:

Because they're tied into a longer lease as well. Yeah, it's gonna be tied into a ten-year lease, so they can't leave for that period. But they also, as you said, there they don't want their shop to look rubbish. Because if their shop looks rubbish, poor quality, then the customers aren't going to come into the shop. So it's for their benefit to maintain the look and the benefit and the quality of the actual retail outlet. So you've got a residential tenant, they don't care how it looks or how they leave it.

Dr James, 20m 38s:

Yes, true, indeed. Yes, that's what I was getting at there effectively, and you've articulated it very nicely. Okay, smashing. So we've dealt with we've dealt with property as an asset class, we've dealt with specifically commercial property uh as a type of investment within the asset class of property. Let's get into a little bit more of the nuance of commercial property itself, uh, the different caliber of tenants, uh, what might drive a higher rental yield versus a lower one, what might drive a higher capital appreciation rate versus a lower one. This is some really meaty stuff that we were talking about just before the podcast started, and I remember you saying that a lot of it comes down to what the risk appetite of the investor is. Is that fair to say?

Alasdair, 21m 29s:

Yes, because you can get you can you can find a 25-year lease to Tespo. Yeah, and you'll only get probably a five and a half percent return on that because it's super safe, it's the same as buying a government bond at that point. You can also get a 25-year lease on a very risky asset, but that would probably give you high teens into 20s return because of the risk that's that's associated with that particular tenant. They may be about to disappear tomorrow, but there's a massive return, and therefore that's why people would take it on. It's also locked down to probably sentiment in the commercial property market. So we we all know and we read about it all the time about how retail's dying on its feet and there's nothing left because everybody shops online, which is not quite true, and I'll come back to that in a minute. But what it does do is it turns a lot of investors away from retail. So shopping centres today, without the UK, you will probably get somewhere between a 16 and 17 percent return on owning a shopping centre. That's not because the rents have stagnated or going down, it's because there's very few banks will fund that at the moment, therefore there's less of people going in, less competition, better better return, which wasn't wasn't the case 10-15 years ago. Retail has not disappeared, and retail has not gone online. I think the figures, and I might be slightly wrong at the moment, but I think it's something like 28 to 29% of retail spend is online, which seems like a lot. I'm much older than you, James, and I as a teenager I did the majority of my shopping in catalogue shopping, which was in its day the internet of the day, and that was mostly clothes. And at that point, that had 18 to 19% of retail spend. So in the last thirty five years, we've only lost 10% of retail spend. And thirty five years ago you didn't boot your holidays online, you didn't buy your glasses online, you didn't buy your Insurance online, so the the retail spend, as we understand today, hasn't changed that much. What has been a bigger effect that nobody thinks about is you can go to Tesco tomorrow and buy everything you will ever need because you can buy your television there, you can buy your clothes there, you can get your travel money, you can get your insurance, and you can get your food. So that just sucks retail spend out the high street, which people forget about. They just all say it's online, it's online, which is not. So retail's still here, and it's it's it's from my perspective, it's still very safe. What you've got to do is make sure you invest in the right areas. It's almost curse to all stop location, location, location. That's so so so prevalent today.

Dr James, 24m 27s:

Fascinating. And there was also something that you said as well earlier, which made me smile. And you said that uh when you were assessing a client and their risk capacity and what they wanted, which it sounds like that's an integral part of your decision-making process, that you might suggest to a client who wanted to play it a little bit more safe to go with a property which has someone like Greg's as a tenant or something like that, because they're a big established company and they seem to be doing all right for themselves, and Greg's isn't going anywhere anytime soon. Is that fair to say?

Alasdair, 25m 2s:

Yeah, Greg's are a phenomenal retailer, but they're probably one of my favorite retailers in that they continually evolve. If you go back 20 years ago, you could get a sorted rolls and pies. Now you can go into Greg's and you can get coffees, pastries, expensive, various things, trying to compete with the competition. But yes, probably the first thing we do with a new client is sit down with them and assess their level of risk. What do they want back from their property? Which should be the same as anybody sitting down looking at how we're going to invest your pot of cash. And if they want nice, safe, super safe return, then yes, we're heading more towards the better known names. So you mentioned Greg's air, a bookmaker, a convenience store, household names, you you'll be in this sort of five to eight percent return there. But if you're prepared to be a wee bit more risky, then we can take you out from there and you're looking at maybe slightly lesser known names, or in up-and-coming areas where you're maybe seeing depreciation coming through, but you're probably you're getting your return on that because you're into the teens. So you've been compensated for taking that risk.

Dr James, 26m 10s:

There we go. There was one other thing I wanted to just touch upon too, which is the other side of your return, effectively, in property, and that is not just the rental yield, which we focused on just a second ago, which is seems to be seems to be mainly composed or largely down to the level of risk of the client and how how liable they are to flake uh or not pay their rent, basically. Uh the other side of things is capital appreciation, and you said that you've noticed that within certain sectors, you were saying to me off camera that you noticed within certain sectors that the capital appreciation is that much more than others. Can you give us a little bit of insight into that? Which sectors?

Alasdair, 26m 56s:

Talk to matter and the sectors is probably quite cyclical. So since COVID 2020-21, the hottest area in commercial property is industrial. And industrial and it's all driven by Amazon. So Amazon occupies about 90% of industrial space in the UK, either directly or indirectly. So which is huge. So that goes all the way from the massive distribution shed. So Amazon brings everything in from China, let's say, it goes into the biggest warehouse in the world in London. But how does London serve Aberdeen or Glasgow or Newcastle or Manchester? Well, they need a series of warehouses to get there. So they go from their massive warehouse in London to their slightly bigger one in Manchester, to their slightly smaller one in in Glasgow, and then from Glasgow, the the smaller one goes all the way down to your man who delivers the parcel to your door who needs his bigger than a garage. So it goes from hundreds of thousands of square feet down to a thousand square feet. But that whole drive has has come on through there, and rents in the industrial market have doubled and tripled over the last four to five years, which is phenomenal. It's the only sector in the market that has done that. Retail is fairly stagnant over the piece. If you go, if you're looking in London, go to Oxford Street, yeah, that has grown. But if you if you go to the suburbs, it's probably not grown to the same level. And offices have gone up and down as demand has changed over the period. So again, we go back to COVID 2020-2021. Nobody wanted to work in an office. We'll never have offices again. Well, that of course wasn't the case, but the demand dropped, and therefore the rents dropped. The rents are gone back up again now. And what we're finding is that office occupiers, if they were in 10,000 square feet in 2020, they're now in 7,000 square feet. So they've reduced their count because of hybrid working and and the like, but they've also improved the quality of their offices to get their staff in, and that's driven rents up because the quality of the office space is improved. So if you were buying today, and it's all down to the lump sum you're going to with in the first instance, but if you're buying today, you probably still want to be buying industrial before retail because there's still more growth. The flip side is retail is probably on its lowest edge, so that's more of a growth, but there's more risk in it than there is in the industrial.

Dr James, 29m 23s:

Did that answer or that just confuse the no no it's it's uh what I was hoping to highlight by saying what I just said was that it's interesting to point out to the listeners, because uh I would I would guess like myself, a lot of the listeners out there who are uh enjoying this podcast episode are just at the very beginning of their property property journey and understanding in essence the mechanics of it, which is really what we've highlighted just then, that we need to not only be thinking about the rental yield and the safety of the tenant, but also understanding that certain sectors are hot, which are driven by certain narratives and certain tailwinds, which are also going to make for a good investment thesis or make for good consideration whenever it comes to understanding these sorts of decisions, and perhaps let somebody realise that it might be helpful to get somebody who lives and breathes this stuff on board so that they can get a real good idea of whether or not their money is in the right place. But Alasdair, I think we've done a really good job of summarising commercial property uh as an investment class today, and I wish to thank you for that. Alasdair, if anybody listening to this podcast wants to reach out to yourself off the back of anything that we said, how would they be best off finding you?

Alasdair, 30m 38s:

Can I have phone me? So my telephone number is 07711 006360. So happy to take a phone call or drop me an email, and my email address is just my name, which is Alison Dare. So that's A-L-A-S-D-A-I-R. Irvin ir v I N E at Ingalls Huawei, which is I-N-G-L-I-S-H-O-W-I-E dot com. Either way you'll get me.