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UK Commercial-Industrial Property | 26 May 2020
Our UK commercial-industrial property correspondent’s observations:
- Commercial agency and lending transactions driven valuation work has fallen off a cliff. Asset management and lease advisory is inundated collecting rent and/or agreeing lease variations (re-gears). Residential lettings surprisingly are busier than ever.
- Expect topflight investment properties to be keenly sought given buyers out there with cash (pension funds, local authorities etc), with a mandate to acquire to generate income. Interest rates have dropped so prime property yields will squeeze.
- Investors will compete for the strong covenant tenants who have been relatively unaffected by the pandemic and that can continue to operate and pay rent – investors want these tenants on their books more than ever. Property essential business asset classes will standout: supermarkets, petrol stations, storage, distribution and logistics warehouses, etc.
- In the last 12 months a Science Park building was acquired at 5.0% with long lease tenants with R&D funds in reserve £50M plus. Late 2019 a leisure park property tenanted by national chain cinema and restaurants, transacted at circa 7.5%. The 2.5% cap rate difference is expected to considerably increase given the pandemic that caused next to no rent income for the leisure park and probably not for 6 months.
- High street retail could be almost wiped out and some UK investment values could be close to vacant possession values. Major retail brands with a substantial online presence are more solid. But for other high street retailers, the pandemic lockdown is the last straw. Turnover rents are a suggested strategy and potential solution.
- National restaurant chains have required landlords’ agreement to 50% rent reduction ‘by the end the of week’, threatening otherwise the company could pass over to receivers.
- People are signalling they want to work from home more often. Anecdotally, a 700 staff firm survey confirmed 84% want to WFH more frequently once the crisis is over. This has obvious potential to disrupt the office property market.
- Office rents will probably not see much growth for the foreseeable future given businesses will potentially reduce footprints and given WFH. Office users are currently mindful of a full rent burden and underutilised office facilities/ real estate.
- Many city dwellers will shift their focus to moving into rural areas to get away from the rat race, and to have some space and fresh air (but nearby trainlines/ commuter lines), for a fraction of city housing prices. One large agency has reported a sudden spike in rural enquiries.
Turley & Co UK Property Correspondent | 26 May 2020