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Scottish commercial property investment up a third

Investment in Scottish commercial property increased by more than one-third (35%) compared to the same period last year during the first six months of 2021 as the market continued its recovery from the pandemic, according to analysis from Knight Frank.

The independent commercial property consultancy found there were £688 million worth of deals between January and June 2021, compared to £510 million during the first half of 2020 – the height of the UK’s first lockdown.

Investment fell marginally between the first and second quarters of 2021, from £371 million to £317 million (15%). However, this does not include deals with undisclosed values, such as the sale of Neptune Energy’s Aberdeen headquarters in May – the biggest investment deal in the city since the pandemic began.

Overseas investors have remained the biggest buyers of Scottish commercial property so far in 2021, making acquisitions totalling more than £300 million. Privately held property companies were involved in £115 million of deals, while UK institutions accounted for another £60 million.

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Alternatives and mixed-use schemes were the most popular asset classes in terms of investment volumes – including the £80 million of funding for Moda’s Holland Park build-to-rent development in Glasgow – followed by offices and industrials. Knight Frank predicted that, with a range of high-quality stock still being marketed, a flurry of deals could complete after the summer.

Alasdair Steele, head of Scotland commercial at Knight Frank, said: “Scotland’s commercial property investment market is still recovering from the effects of the pandemic, but there are signs we are heading in the right direction as the economy re-opens. The biggest investment transaction in Aberdeen since the pandemic began is indicative of the fact that significant deals are beginning to conclude and, all things being equal, we should see more after the summer break.

“While alternatives and mixed-use schemes has been an active sector over the past year or so – particularly in the build-to-rent market – another notable trend has been the hardening of yields for retail warehousing. With more investors looking for exposure to these assets, we expect the trend for good quality retail warehousing to continue, while offices should gain momentum in the second half of the year as the occupier market recovers and overseas inspections are allowed once again.

“There is a great deal of interest in what Scotland has to offer, with comparatively strong fundamentals. Commercial property remains an attractive source of secure long-term income, which is still a precious commodity for investors.”

By Brian Donnelly

Source: Herald Scotland

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Commercial property market growth prediction

The commercial property market could see returns grow by 6.4 per cent in 2021, real estate firm Colliers predicts.

The growth would be made up of 4.8% income return and 1.6% capital growth.

This follows a 2.3% decline in all property total returns in 2020. The firm says industrial and supermarket assets will be the most popular with investors in its latest Real Estate Investment Forecasts report.

Oliver Kolodseike, deputy chief economist at Colliers, said: “Latest business and consumer confidence survey data suggest that the economy will bounce back strongly in Q2. This is heightened by consumer confidence rising to its highest level since before the start of the pandemic, adding to hopes that the consumer sector will help drive the economic recovery.

“Mild rental growth will result in a slight reduction in yields in the short term, but we expect yields to then generally shift out in line with the trends for the Bank of England Bank Rate and 10-year government bond yields.”

Colliers predicts that over the five-year forecast, industrial and supermarkets will be the best performing sectors.

All retail total returns are expected to show marginal growth of 0.6% this year, having suffered a 12.4% decline in 2020.

The office sector has also been going through structural change with lease lengths shortening according to Colliers.

While the proportion of deals signed with lease commitments in excess of three years averaged out at 77% between 2016-2019, in 2020 the equivalent number was down to just 53%.

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Colliers expects all industrial yields to stand at 4.73%. Going forward, the firm predicts a stabilisation in 2022 and very mild outward shifts thereafter.

Given the ongoing strength of rental growth, all industrial total returns will show growth of 16.1% this year, the firm says, before slowing to a more sustainable rate of 5.4% in 2022.

John Knowles, head of National Capital Markets at Colliers, added: “It is particularly hard to forecast across all sectors over the next six months, however it does seem that industrial will continue to benefit from a demand driven market, much as it has done over the last 18 months. I have high hopes for the office sector, as confidence returns as people start to occupy their workplace again and business travel should open up to some extent over the next couple of months.”

Source: Punchline

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The Kent towns where sold prices spiked the highest during lockdown

House prices have seen record rises between March 2020 and 2021, according to new data from the Office for National Statistics.

In spite of worries about the economy and the housing market since the onset of the global pandemic, property prices in Kent and the UK more broadly have remained strong.

Overall, our county has seen substantial rises, whilst the picturesque Tunbridge Wells has seen prices rocket by the most locally in the past year.

In March 2020, the average house price in Tunbridge Wells was £377,298, but by March 2021, it had jumped by 10.5 per cent – or £39,768 – to £417,066.

In other parts of Kent, prices were also up.

In Folkestone and Hythe, average prices rose by 12.9 per cent, or £33,491, to £293,076 at the end of March.

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Meanwhile there was a 13.7 per cent rise in Thanet, an increase of £32,004 to £265,517.

Canterbury and Dover also saw large proportional spikes, rising by 10.7 per cent and 11.5 per cent respectively.

Compared to the rate of real wage growth, calculated by subtracting the rate of inflation from wage increases, this is even more significant – as during the pandemic, wages rose by just 2.8 per cent on average.

Across Kent as a whole, prices have risen by 8.8 per cent – or £25,647 – in the past year to an average of £317,251.

This means that house prices in Kent are now more than 10 times the average yearly income in the UK, which currently stands at around £31,000 a year.

This is slightly lower than the UK on average, clocking in at an increase of 10.2 per cent across the same period according to figures from the ONS.

This is the highest annual growth rate the UK has seen since August 2007, before the infamous ‘credit crunch’ financial crisis.

Early 2020 saw the housing market grind to a halt – as the first lockdown starting in late March closed estate agents and banned viewings.

Once things reopened, the UK’s average house price growth accelerated rapidly.

Th ONS said the pandemic may have caused house buyers to reassess their housing preferences.

The average price of detached properties increased by 11.7 per cent in the year to March 2021, in comparison flats and maisonettes rose by 5.0 per cent over the same period.

Here is the detailed breakdown of house prices across Kent.

Read about the UK Housing Market via our Specialist Residential & Buy to Let Division

Change in house prices from March 2020 to March 2021

From left to right, the statistics are as follows: District, average house price in March 2020, average in March 2021, price growth in £, price growth in percentages

Tunbridge Wells // £377,298 // £417,066 // £39,768 // 10.5%

Folkestone and Hythe // £259,585 // £293,076 // £33,491 // 12.9%

Thanet // £233,513 // £265,517 // £32,004 // 13.7%

Canterbury // £296,522 // £328,203 // £31,681 // 10.7%

Dover // £247,252 // £275,797 // £28,545 // 11.5%

Dartford // £296,658 // £324,905 // £28,247 // 9.5%

Kent // £291,604 // £317,251 // £25,647 // 8.8%

Sevenoaks // £438,933 // £463,573 // £24,640 // 5.6%

Tonbridge and Malling // £366,893 // £390,617 // £23,724 // 6.5%

Maidstone // £285,672 // £307,072 // £21,400 // 7.5%

Medway // £239,359 // £258,787 // £19,428 // 8.1%

Ashford // £295,451 // £312,957 // £17,506 // 5.9%

Swale // £240,915 // £256,208 // £15,293 // 6.3%

Gravesham // £280,197 // £290,077 // £9,880 // 3.5%

By Claire Miller and Harry Higginson

Source: Kent Live

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HMRC: April resi transactions highest for that month since 2007

HMRC’s provisional non-seasonally adjusted estimate for UK residential transactions in April 2021 was 111,260, the highest total in April since 2007, when transactions were 126,450.
However, this is a drop from the March 2021 figure of 190,980.

Provisional non-seasonally adjusted UK residential transactions in April 2021 increased 197.8% year-on-year, but a substantial amount of this difference is due to the impacts of the COVID-19 pandemic on the April 2020 statistics.

In addition, the non-seasonally adjusted estimate of 392,170 for UK residential transactions during quarter one of 2021 was the highest Q1 total since the introduction of stamp duty statistics in their current format in 2005, and the highest quarterly total since Q2 2006 (419,270).

Due to the pandemic, quarter two of 2020 was the lowest quarterly total for UK residential transactions since Q1 2009.

Provisional estimates of UK residential transactions in April 2021 have shown an impact from the temporarily increased nil rate bands for stamp duty and and Land Transaction Tax (LTT).

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Following year-on-year decreases in April and May 2020 of around 50%, caused by the pandemic, non-seasonally adjusted UK residential transactions have gradually increased, peaking in March 2021 with a provisional estimate of 173,410.

For non-residential transactions, non-seasonally figures in April 2021 increased 94.4% year-on-year, but again this will largely be due to the effects of the pandemic on last year’s data.

Provisional estimates of UK non-residential transactions in April 2021, 10,520 non-seasonally adjusted and 10,160 seasonally adjusted, are similar to levels reported during April in recent years, excluding 2020.

Following yearly decreases in April and May 2020 of around 45% caused by economic effects around the pandemic, non-residential transactions have followed a generally increasing trend during subsequent months.

Joshua Elash said: “Transactions are significantly down from March due to a large number of purchases completing that month in anticipation of the stamp duty holiday expiring.

“It evidences how significant an impact the scheme is having on buyer appetite and confidence.

“April was always going to be softer in terms of number of transactions.

“The annual rebound has, however, been stunning.

“A year ago, the first lockdown bit into the property market hard, and this comeback is nothing short of astonishing.

“All in all, the data continues to support a growing argument that stamp duty should be abolished completely so as to continue to encourage transactions, upward mobility, and to support the economy.”

Mark Harris said: “April’s dip in transactions compared with March is likely to be at least partly due to the anticipated end of the stamp duty holiday, before its extension was announced, which resulted in buyers taking their foot off the gas to get deals done.

“Now that the holiday has been extended, activity has picked up again.

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“Compared with April last year, when the housing market was closed to business thanks to the pandemic, there has been a massive 179.5% jump in transactions.

“That reflects the grinding to a halt of the market, as well as the surge in demand created by COVID, with more people bringing forward moves to the country and a growing desire for more space, both inside and out.

“On the lending front, lenders have plenty of cash and are keen to lend.

“There are some very competitive products, and with Nationwide returning to 95% LTV mortgages at lower rates than its competitors, it is a good time to borrow.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: “Although these figures reflect many sales agreed several months ago, they show a reduction in activity as many buyers did not expect to still take advantage of the stamp duty holiday.

“However, activity has picked up strongly since the deadline was extended, allowing many to continue where they left off, as well as encourage new entrants to the market.

“Transactions are always a better measure of housing market strength than prices which tend to fluctuate.

“On the ground, supply is still a problem even though listings have improved as rollout of the second jab in particular is encouraging sellers to make their properties available.

“It is not only some sellers who are trying to profit from the home buying frenzy but certain solicitors are charging exorbitant fees to take on work, whereas others are working evenings and weekends to make sure they get over the line in time.”

By Jessica Bird

Source: Mortgage Introducer

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Commercial Finance – Business Interruption Loans and COVID

How COVID-19 Has Impacted Commercial Finance

The COVID-19 pandemic has left a lasting impact on many aspects of life, from restrictions on social lives, to businesses going into administration. Even though the UK economy is now experiencing a period of positive growth, mainly due to the pace of the vaccination programme, the financial impact of the pandemic is still very visible.

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Shortly after the first lockdown restrictions came into place, lenders were quick to tighten their lending criteria, to try and protect themselves from the expected risk of higher unemployment levels and people struggling to pay off mortgages and loans.

Commercial finance was affected in a similar way, with so many businesses being forced to close during lockdown, the commercial finance landscape lurched into unknown territory.

Many businesses were provided with financial support in the form of furloughing, business interruption loans and bounce back loans but others were unable to apply for these. Some lenders offered holiday payments for commercial finance, so there were numerous financial support options in place to try and help struggling businesses survive the pandemic.


Commercial Mortgages UK Adverse Credit and BTL

As an independent UK Commercial Mortgage Broker we carefully examine all the Buy-to-Let mortgage offers from leading whole of market lenders across the UK. You will benefit from low interest rates, lenient eligibility criteria and a simplified procedure. You also have the choice of Second Charge Mortgages, Adverse Credit Mortgages for individuals with crediting challenges, to straightforward Residential Mortgages for your own home.

With the reassurance of attractive Mortgage Protection Insurancee options, we also offer specialist mortgage broker services such as self-employed Contractor Mortgages, Expat Mortgages, home loans and Sharia Mortgages, to commercial Serviced Accommodation Finance from holiday homes to Property Investors, Developers and existing Homeowners.

Business Loan Applications – UK’s Changing Priorities

The priority for the government was to assist existing businesses, rather than helping new businesses to launch, which was highlighted by the financial support options that were made available. Startup loans were still available from some lenders but it was now harder for many would-be entrepreneurs to access loans.

In the UK, many people use startup business loans to buy the equipment and pay for other essentials when they start up a business. With the economic downturn, many lenders have withdrawn products from the market and tighter lending criteria was applied.

However, the Bank of England cut interest rates down to 0.1% which meant that some of the new business loan interest rates have been more attractive for startup business owners, but there is a more comprehensive set of lending criteria to enable lenders to manage risk in the unstable climate.

COVID Government finance support schemes for businesses

To assist existing businesses who had been adversely affected by coronavirus, the government introduced the following schemes to support cashflow during this challenging period:

Interest-Free Business and Commercial Loans

Coronavirus Business Interruption Loan Scheme (CBILS)

SME businesses have been able to access business interruption loans for lost revenue and cashflow disruptions. The CBILS was also made available to businesses whose growth requirement could not be supported under standard bank lending criteria. Under the scheme, businesses who had been adversely affected by the pandemic could apply for loans of up to £5million.

The first 12 months of the loan is interest-free and the interest rates after a year for the CBILS scheme were set by the lenders. Some lenders provided the loans with an interest rate as low as 1.4%, while at the higher end of the scale, some lenders were offering the loans with a 8.9% interest rate. Terms were available for up to 10 years.

To encourage more lending, the government also guaranteed loan repayments, with the borrower being fully liable for the debt.

Lenders were able to provide the following finance under the CBILS scheme:

  • Term loans
  • Overdrafts
  • Invoice finance
  • Asset finance

Bounce Back Loan Scheme (BBLS) SME and Sole Trader Businesses

The Bounce Back Loan was aimed to support smaller businesses and sole traders, to provide them quick access to financial support. The scheme allowed businesses to borrow between £2,000 and up to 25% of their turnover (to a maximum of £50,000). For the first 12 months, there is no interest to pay and following that first year a rate of 2.5% would be applied.

The maximum loan length for the BBLS was six years and this scheme also came with a guarantee to the lender from the government for the repayment, with the borrower remaining liable for the debt.

Pay As You Grow (PAYG) Business Support

For businesses who took out the BBLS, the option for PAYG was later introduced to provide further support, allowing:

  • An extension of the loan term from six years up to 10 years, remaining at 2.5% interest rate.
  • Reduction of monthly payments by paying interest-only for six months. This could be requested up to three times throughout the term of the loan.
  • A repayment holiday of up to six months, which was only available once during the term.

Other financial support provided to businesses included:

Job Retention Scheme – Paid in the form of grants to pay 80% of the salaries of furloughed employees.

New Restart Grants – A one-off cash grant of up to £18,000 for businesses re-opening from April 2021, including pubs, hotels, restaurants, gyms, salons and clubs.

Business Rates Holidays – Business rates were cancelled for all retail, leisure and hospitality businesses for the tax year 2020-21 and up to June 2021, with a discounted rate for the remainder of the tax year.

Recovery Loan Scheme – This has replaced the BBLS and allows businesses to apply for between £25,000 and £10m. The government has given lenders an 80% guarantee for these loan repayments.

There have also been other schemes for different types of businesses, some made available through local authorities.

Commercial Finance Landscape Has Changed – Conclusion

COVID-19 has completely changed the landscape for commercial finance, particularly as the government has been compelled to step in to help save businesses from closure or building up unmanageable debts.

Lenders have been able to provide loans under the schemes with the security of knowing that the repayments are guaranteed by the government, which has helped them to continue providing finance to businesses when the risk to them is extremely high.

The success of the UK vaccination programme has already had a significant impact on economic recovery in the UK and the combination of this, along with the support that the government has provided will certainly have saved many businesses which otherwise would have gone into administration.

Experts are predicting that over the next few years should hopefully see a shift back towards the type of commercial finance products that were available pre-COVID, albeit with stricter lending criteria until we see a full economic recovery.

Commercial Finance Network is a specialist Commercial Finance Broker offering all types of commercial finance to SMEs along with individual investors. Get in touch today via either our Contact Form or call us on 03303 112 646.

Commercial Business Finance – The Rise of AI In The Banking and Lending Circles

June, 2017 archives: “Artificial intelligence can help people make faster, better, and cheaper decisions. But you have to be willing to collaborate with the machine, and not just treat it as either a servant or an overlord,” says Anand Rao, PwC Innovation Lead, Analytics.

The quote neatly sums up our relationship with AI technology. Although we appreciate its potential, we feel edgy about its power and possibilities. However, despite this, it’s pervading our lives as consumers, whether we like it or not. Every time we receive a marketing email or product recommendation, we can be sure the algorithms have been at work and we are far from the random target.

Despite its image of being cautious and conservative, the banking industry as a whole appears to have had few qualms about adopting the technology – and it seems that, as consumers, we are happy with this. A mammoth survey of around 33,000 consumers by Accenture found that more than 70 percent of us would be willing to receive computer-generated banking advice. “Automated servicing can be the sole source of data from some customers, even when making complex decisions around products,” says the report.

One of the main uses of AI so far has been in customer service. Chatbots are becoming the de facto alternative to banking apps. This use AI to simulate conversion through written or spoken text. Just as Amazon has humanised its digital assistant by calling it Alexa, so has the Nordic banking group Swedbank created ‘Nina’. This chatbot is clearly popular; within three months of being deployed, Nina was averaging around 30,000 conversations per month.

However, this is the sharp end of AI – the human/machine interface mainly used in the consumer-facing world of retail banks. But how does – or will – AI play out in a commercial finance environment?

The business sector is understandably more cautious, prudent perhaps, about adopting new technologies until they have matured. But as millennials take up more senior roles in the commercial banking world, they will be increasingly pushing for the rich functionality they know as consumers to also be integrated into their working environment.

Today, we are seeing signs that adoption rates of AI-based technology are set to take off in business banking too. More and more banks are borrowing retail banking experience to build out their commercial and business strategies. But while the focus of its use in the retail banking world has mainly been for customer service and sales applications, in commercial banking, use cases (initially at least) are likely to be more around streamlining operational processes.

In a sense, AI as it stands today, in this environment is all about automation, about making processes faster and more efficient. And there are a raft of applications here where automation is having a hugely positive impact.

Take the introduction of digital expenses platforms and integrated payments tools, both of which have the potential to significantly improve a business’s approach to how it manages cash flow. By having an immediate oversight, through live reporting of all spending from business cards and invoice payments, as well as balances and credit limits across departments and individuals, businesses can foresee potential problems more quickly and react accordingly. All these services become even more powerful when combined with technologies like machine learning, data analytics and task automation.

We are already seeing growing instances of AI and automation being used to streamline payment processes in banks. Cards can be cancelled or at least suspended quickly and easily and without the need to contact the issuing bank, while invoices can also be automated, to streamline business payments. This means businesses can effectively keep hold of money longer and at the same time pay creditors more quickly. Moving beyond straightforward invoice processing, intelligent payment systems can be deployed to maximise this use of company credit lines automatically.

Looking ahead, we see a string of applications for AI in the payments management field around analysing data with the end objective of spotting anomalies in it. With the short and frequent batches of payments data used within most enterprises today, it is unlikely that even the best-trained administrator would be able to spot transactions that were out of the normal pattern. The latest AI technology could be used here to tease out anomalies and pinpoint unusual patterns or trends in spending that could then be investigated and addressed.

While this area remains in its infancy within the banking and financial services sector, with technology advancing, financial services organisations and the enterprise customers they deal with will in the future will be well placed to make active use of AI that will help clients track not just what they have been spending historically but also to predict what they are likely to spend in the future. AI will ultimately enable businesses to move from reactive historical reporting to proactive anticipation of likely future trends.

Source: Russell Bennett, chief technology officer, Fraedom

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UK Commercial Property confident after a tough year

UK Commercial Property reported a year-end net asset value of £1.1bn in its final results on Friday, representing a negative total net asset value return in the year of -0.9%, as valuations came under pressure amid the Covid-19 pandemic.

The FTSE 250 real estate investment trust noted that over the longer term, it had delivered a 10-year net asset value total return of 85.6%, compared to the Association of Investment Companies (AIC) peer group’s 32.4%.

It reported EPRA earnings per share of 2.71p for the year ended 31 December, down from 3.50p year-on-year, as earnings were impacted by bad debt provisions and sales made in the year, resulting in reduced income.

The company’s total share price return was negative at -19.7%, swinging from a positive return of 11.3% in 2019, as the share prices of most diversified real estate investment trusts fell due to negative sentiment associated with the coronavirus crisis.

As at year-end on 31 December, the company’s discount to the last published net asset value was 16.7%, which the board said was in line with other diversified REITs.

The company said its net gearing was low at 6.4%, compared to 14.7% a year earlier, which it said remained one of the lowest in its peer group and the wider REIT sector, with the AIC sector average standing at 31%.

Its financial resources stood at £218m at year-end, up from £130m year-on-year, which was further boosted by sales in the first quarter of 2021, resulting in it having £276m to invest into its portfolio and enhance earnings.

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In order to comply with the REIT rules, the board announced that shareholders would also receive a further interim dividend for 2020 of 0.531p, which would be paid on 21 May to shareholders on the register as at 7 May.

Looking at its portfolio, UK Commercial Property said it produced a positive total return of 1.1% for the year, down from 1.4% in the prior year but still “significantly outperforming” the -0.9% from the MSCI benchmark, as its portfolio weightings provided a tail wind to relative performance.

Rent collection stood at 83% for the year, compared to the 77% it reported at the half-year and 97% for the whole of 2019, as rent collection rates continued to increase as the year progressed.

It made £74m of acquisitions during 2020, with funding of two student accommodation assets in Exeter and Edinburgh as well as the acquisition of an Asda store in Torquay.

The board said those assets would generate secure income as it built a “modern economy portfolio”.

UK Commercial Propety’s occupancy rate improved to 93.5% from 92.1% over the year, despite the pandemic, as successful letting activity – particularly at XDock 77 in Lutterworth – resulted in higher occupancy levels.

The board said that also compared favourably to the MSCI benchmark occupancy rate of 92.6%.

Its industrial weighting was 58%, compared to the benchmark of 30%, and its retail weighting stood at 17%, compared to the benchmark of 25%.

The board said the company’s portfolio was “well-aligned” to an industrial sector that was forecast to outperform, and underweight to the retail sector as a result of several sales in the year.

“A key focus over the past year has been to work in partnership with our tenants to find mutually acceptable solutions to rent collection and I am pleased that UKCM, with its strong focus on environmental, social and governance (ESG) matters, has managed to do this with our occupiers across the portfolio,” said chairman Ken McCullagh.

“We have maintained dividend payments and we see potential for dividend growth in the short to medium term.

“There has also been good progress in selling assets in line with our strategy, further and selectively reducing retail exposure, and investing in assets fit for a diversified modern economy portfolio with an intentionally strong weighting to the industrial and logistics market.”

McCullagh said the last year had resulted in “profound changes” to the way businesses operate, and how individuals live their lives.

“Although there is much speculation over the future of the office sector, for example, as businesses adjust to hybrid working practices, UKCM is in a strong position and the success of the vaccine rollout thus far should provide confidence that businesses can reopen and rebuild.

“The portfolio that has been put in place over the last few years has enabled the company to weather the current difficult situation and emerge in a position of relative strength to create additional value in the future.”

At 0902 BST, shares in UK Commercial Property REIT were down 0.55% at 75.68p.

Source: ShareCast

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Scottish commercial property investment volumes pick up during Q3

Investment volumes in Scottish commercial property staged a recovery between July and September 2020, buoyed by the best third quarter for office deals in five years, according to analysis from two separate reports.

Analysis from Knight Frank found that the COVID-19 pandemic saw investment levels drop to record lows in Q2 2020, following the introduction of lockdown restrictions and, subsequently, the attachment of material valuation uncertainty clauses to commercial property assets.

However, as the economy began to re-open a number of significant deals concluded between July and September, totalling around £400 million – just shy of the Q3 five-year average of £405m. Investment in offices during the three months hit £218m, against an average of £116m for the same period in the past half-decade.

The biggest deal of the quarter was Roebuck Asset Management and Hyundai Asset Management’s £133m acquisition of Aegon’s Edinburgh headquarters during July.

In Glasgow, there were several deals including Singapore-based Elite Partners Capital’s purchase of 150 Broomielaw for around £40m, while the Guildhall building on Queen Street changed hands for around £30m.

The third quarter also saw the completion of Scotland’s biggest-ever logistics property deal, with the acquisition of Amazon’s main Scottish fulfilment centre near Dunfermline by Knight Frank Investment Management, on behalf of a Korean investor.

Euan Kelly, capital markets partner at Knight Frank, said: “The deals that concluded in Q3 underline the trends we’ve seen take hold over the course of 2020 – a flight to quality assets in prime locations, let to strong covenants. The sale of the Amazon fulfilment centre in Dunfermline also highlights the growing appetite for industrial and logistics property that has emerged since the beginning of the COVID-19 pandemic.

“It is not all doom and gloom – however, the devil is very much in the detail behind the headline figures. If you have a multi-let industrial site, well-placed logistics shed, or a high-quality office building there will likely be a great deal of demand for that type of product. In that respect, property is reflecting what is happening elsewhere in the economy, with the strong getting stronger and vice versa.

“We are still in a continually evolving situation, but there are reasons for cautious optimism. The lifting of material valuation uncertainty clauses will help bring a level of certainty to the commercial property market – some deals cannot be financed when they are attached to an asset valuation – and there is a weight of money looking to be deployed in the right type of investments.

“In a world where there is little in the way of certainty, investors have an insatiable appetite for secure, long-term sources of income – and quality commercial property is in a great position to provide that.”

Meanwhile, a Q3 Scotland snapshot from Colliers International predicted a strong finish to 2020 for commercial property investment.

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Volumes in Q3 represented the highest quarterly figure in a year. While this was still almost 20% below the five-year quarterly average of £564m, Colliers said there is hope for a strong end to the year with pent-up demand driving activity.

Oliver Kolodseike, associate director, Research and Forecasting, at Colliers International, said: “It is positive to see that transactional volumes have started to pick up again and we are now expecting a strong end to the year in Scotland as we recover from the ‘COVID quarter’. An annual investment total of £1.5 billion across all sectors would be a positive result given the nationwide lockdown earlier in the year.”

Colliers’ analysis found that the office and alternative sectors accounted for three quarters of all activity by value, while investment volumes in the industrial sector were 40% above its five-year quarterly average. Unsurprisingly, given the ongoing impact of the pandemic, activity in the retail segment was limited.

There was a renewed interest in Scotland from Asia-Pac investors, accounting for over half of all investment volumes. This included the quarter’s largest deal which saw South Korean Hyundai Asset Management purchase 1-3 Lochside Crescent in Edinburgh for £133.25m. The 247,500 sq ft asset is currently let to insurance group Aegon. This is Hyundai Asset Management’s second Edinburgh purchase in less than 18 months, having already bought Gyle Square in April 2019 for £55m in one of Scotland’s other largest office deals that year.

Looking in more detail at investment in the office sector, performance was relatively strong in Q3 after no notable deals were recorded in the previous three months. A total of £186m was invested during Q3, only slightly weaker than the £196m transacted a year ago and marginally below the five-year quarterly average of £193m. In one of Scotland’s other largest office deals this year, Singaporean Elite Partners Capital bought 150 Broomielaw, the 97,000 sq ft building completely let to Scottish Enterprise, for £40m.

Industrial investment activity picked up during Q3, with volumes reaching £80m, 40% above the five-year quarterly average of £56m. The figure was boosted significantly by the sale of Amazon’s 1,023,000 sq ft logistics centre to Korean-based KB Securities for £66.8m, representing the second-largest industrial deal ever recorded in Scotland. In Glasgow, Stenprop acquired two separate units in Glasgow for a combined £10.7m. St Andrews Industrial Estate, covering 73,200 sq ft, sold for £5.5m, while Excelsior Industrial Estate, occupying 61,000 sq ft, went for £5.2m.

Patrick Ford, director, National Capital Markets, Colliers International in Glasgow, said: “It was good to see this relatively strong investment performance in the industrial sector in Scotland’s two biggest cities in Q3. Overseas investors, particularly those located in Asia, remain very interested in the Scottish industrial sector and large deals continue to be done, despite global economic uncertainty on the back of COVID.”

In Glasgow, the move to bring more residential properties back to the city centre continued. The third quarter’s largest deal saw Legal & General UK BTR forward funding an £81.5m mixed-use regeneration scheme in Candleriggs Square which will include 364 build-to-rent units.

Patrick Ford added: “There is a push towards a more mixed-use environment in city centres, particularly in Glasgow and this is reflected in the scale of investment in the city in Q3. This trend will be accelerated by the impact of COVID which is likely to see people work from home, at least part of the week, for the long term. This will change the nature of the office environment and the make-up of city centres.”

Oliver Kolodseike concluded: “In line with the wider global economy, Scotland’s GDP will take a substantial hit this year. The pace and magnitude of the economic recovery will depend on the lockdown exit strategy, the oil price trajectory and Brexit deal negotiations.”

By Euan Kelly

Source: Scottish Construction Now

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There’s still plenty of potential for investors in commercial property

Jitters over the outlook for the commercial property sector are overdone, says Max King. Investors should consider this Europe-focused real-estate investment trust.

Amid the sweeping prophecies that life will never be the same post-pandemic, it is refreshing to hear a more cautious view. “I am a slight sceptic of the widespread assumption of ‘a new normal’,” says Mat Oakley, head of pan-European commercial property research at Savills. “We see such forecasts in every crisis; change will happen more slowly.”

“Commercial property is a simple asset class,” he says. “In an expansion, we need more space. Currently, we are in a thumping great recession, but I expect a not-quite V-shaped recovery in which GDP recovers quickly but unemployment doesn’t return to 2019 levels for five years.”

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Property investment, now past the nadir, was 43% below the five-year average in the first half of 2020. But it was 51% down in 2008 and “the recovery will be better this time”. In the office market, vacancy rates are rising, there is downward pressure on rents and development starts are being delayed, but “we are not at the end of the cycle: the medium-term fundamentals remain good”. Less development will reduce vacancy rates and the pressure on rents.

What about the shift to working from home? Oakley points out that home-working is suitable for some tasks (reading documents, focused work and video or phone calls), but “a lot of things work better in an office so offices won’t disappear”. Offices are better suited to team management, meetings and the informal chats or chance encounters that can spark fruitful new ideas and strategies for the company, a key factor in services and creative businesses. Surveys show a marked swing in favour of working from home, but from one day a week or less to two or three days a week – not to full-time.

Retail parks have been more defensive than shopping centres, with weekly footfall down 20% rather than 60%. Retail parks are well suited to “click and collect” services and returns, while they also offer social distancing. In the industrial market, the take-up of logistics space in the first half was the highest for 15 years, but this type of property “is not as safe as it seems”. When vacancy rates rise above 12%, as they did in 2009, rents fall.

The best real-estate bets on the continent

Marcus Phayre-Mudge, manager of TR Property Investment Trust (LSE: TRY), is not ready to buy into the UK yet. Only 28% of his portfolio is invested in listed British shares; another 7% in directly held properties and 64% in continental shares. Of the latter, 45% is in Germany and Austria and nearly all the rest in France, Benelux and Scandinavia. He is cautious about Britain because since December 2015 European property shares have returned 45% in sterling, but British ones -20%.

Within the UK, favoured areas are “beds, meds and sheds”: student accommodation, healthcare property and self-storage, companies that are UK-listed but have their assets in Europe and two specialist real estate investment trusts (Reits), Supermarket Income and Secure Income. Student accommodation and Secure Income, owning hotels and leisure attractions, have been poor performers. Progress on the directly held properties may open the way to asset disposals.

Though the share price is down 32% since February, its European focus means that performance is far ahead of the UK property sector over three and five years. The shares yield over 4%, trade on an attractive 13% discount to net asset value and, with a market value over £1bn, are highly liquid. Phayre-Mudge is positive: demand from tenants, “excluding non-food retail, should prove stable while a lack of supply, due to the absence of a development cycle in 2008-2014 and the current development cycle being deferred, means that there is no surplus of new space to undermine rents… Real estate, particularly where income is long and strong, will be an attractive investment”.

By Max King

Source: Money Week

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Commercial property market shows signs of life

UK commercial investment activity rose 42 percent in June compared to May, up from £755m to £1.3bn, taking total volumes for H1 2020 to £15.6bn, according to the latest market update from Savills. With the all-sector prime commercial property yield remaining stable at 5.21 percent in June, Savills says that together this may signal some stability is now returning to the UK investment market.

According to the real estate advisor, another notable change is that there are signs that yields may harden on prime West End offices, industrial multi-let and distribution assets. This reflects a very typical turning point for the commercial property market, says Savills, with investor interest returning first to those sectors that are perceived as core.

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James Gulliford, joint head of UK investment at Savills, comments: “There’s some evidence that we may have passed the nadir of this cycle in terms of investment volumes in May. This of course does not change the overall story of Q2 2020 being the weakest quarter on record for UK investment activity, and we estimate that volumes in the first half of 2020 were 43 percent below the five year average, but the hope is now that a corner has been turned.”

Mat Oakley, head of UK and European commercial research at Savills, adds: “The shape of the UK economic recovery is increasingly looking ‘tick-shaped’, starting with strong quarter-on-quarter growth in Q3 2020, though with 2021 not showing a recovery of the magnitude of the fall seen in 2020. While a revival in GDP growth is imminent, unemployment is not expected to return to 2019 levels at any point in the next five years. Although this isn’t essential, as many businesses were reporting recruitment difficulties due to such a tight labour market, high levels of unemployment will drag on consumer sentiment, boost precautionary saving and diminish retail spending.”

By Neil Franklin

Source: Workplace Insight

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UK Finance: Finance sector committed to supporting commercial landlords

UK Finance has confirmed that the banking and finance industry will continue to support commercial landlord customers with the June/July rent quarter rapidly approaching.

The trade body said that lenders recognise that commercial landlords and their tenants may have concerns about their ability to make their payments and that support was available including the providing of capital payment holidays and amending current facilities.

Stephen Jones, chief executive of UK Finance, said: “Commercial finance providers are working hard to support business customers through these difficult times and lenders recognise that the current situation poses particular challenges for commercial landlords and their tenants.

“A wide range of flexible support is available, including amendments to facilities and capital payment holidays to help landlords and their tenants manage through the disruption.

“As part of the support being provided ahead of the June quarter day all the main commercial lenders are proactively contacting their major commercial landlord borrowers to identify concerns they have and provide support where appropriate.”

Those commercial landlords who are concerned about making loan repayments or require financial assistance during this time and who have not yet been in contact with their lenders should do so through the usual channels.

By Ryan Fowler

Source: Mortgage Introducer