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Investing in commercial property: a tale of three markets

Britain’s commercial property sector has traditionally been divided into three subsectors: industrial, offices and retail. In the 1980s and 1990s, retail outperformed while industrial properties struggled as consumer spending rose inexorably but the country deindustrialised. In the last ten years retail has lagged as household spending migrated online; industrial property, however, has outperformed thanks to the growth in logistics warehouses, notably to service online shoppers. But in recent years some of the best growth has come from three smaller subsectors: student housing, healthcare and self-storage – or beds, meds and sheds. Investors can gain access to each of these subsectors through real-estate investment trusts. Are they still worth a look?

The university boom

Student numbers reached 2.3 million in 2018; 75% are undergraduates and 80% are British. Despite the introduction of full tuition fees in 2012, more than half of school leavers go on to higher education. The annual number of applicants through the Universities and Colleges Admissions Service (UCAS) has doubled to 533,0000 in 25 years. Students used to live in college-owned halls of residence or in the private rental market. But demand outstripped both the willingness of the former to provide the necessary capital and the capacity of the latter.

Unite Group (LSE: UTG) was founded in 1991, initially to provide purpose-built student accommodation in the Bristol area. It now provides 75,000 beds across the country. Unite forms partnerships with universities to ensure high occupation: 92% of beds are reserved for 2019/2020 and 60% are guaranteed by universities. Occupancy of 98%-99% has consistently been achieved and rental growth is in the range of 3%-4% per annum. At mid-year the group’s assets stood at £3.2bn, of which £1bn was financed by borrowings, although the £1.4bn recent acquisition of Liberty Living will have increased gearing to around 35%.

The shares, at 1,240p, trade at a 47% premium to net asset value (NAV), are valued at over 30 times earnings and yield just 2.6% but Unite says that the acquisition is “materially accretive to earnings”, while it is “confident of 3%-3.5% medium-term rental growth”. But even if the 12% growth in interim earnings and 8% growth in the dividend continues, it will take several years for the shares to look good value, despite the low-risk business model.

A turnaround story

Empiric Student Property (LSE: ESP) with 8,882 beds and £1bn of assets, seems much better value at 98p. It is on a 10% discount to NAV and yields 5%, but it is recovering from operational problems in 2017 that prompted a dividend cut. It focuses on smaller, higher-quality and more expensive buildings to appeal to graduates (46% of tenants) and overseas students (67%). GCP Student Living (LSE: DIGS), with £960m of assets, is of a similar size, but has less debt and an unblemished record. It trades on a 14% premium to NAV and yields 3.2%. It has 4,116 beds in 11 locations, but just 23% of its tenants are from the UK. As with Empiric, this may be an advantage as growth in international student numbers looks assured.

The rise of the health centre

The merger of Primary Health Properties (LSE: PHP) with MedicX leaves just two companies specialising in health centres: PHP, with £2.3bn of assets and Assura (LSE: AGR), with £2bn. Both trade on large premiums to NAV (38% and 50% respectively). But the attraction is dividend yields of 3.7% and 3.5% that are not only very safe, but also all but guaranteed to be at least inflation-indexed.

Both groups own purpose-built health centres, at least 90% of whose income comes directly or indirectly from the NHS on long-term leases, with the rest coming from pharmacies. Following the acquisition of MedicX, PHP now owns 488 of these, which are 99.5% occupied, while Assura has 560.

These health centres have replaced many of the old, small GP surgeries, but house many more doctors together with modern equipment, clinics, diagnostic testing, pharmacies and even day-surgery centres. Rental agreements provide for modest annual increases, but there is the potential for more if a property is modified or extended. Expansion comes from buying recently built premises or through funding a developer and then buying on completion, thereby avoiding risks connected with construction.

With only 20% of the PHP portfolio having a lease expiry of less than ten years, there is little opportunity or wish to trade the assets; the value of the shares lies in the rental stream. This makes them comparable to infrastructure funds, except that ownership of the assets is permanent. Strong performance in 2019 means that the shares of both are no longer great value, but they represent sound investments for those seeking secure, growing income.

The “meds” theme also covers two smaller companies that own residential care homes, Impact Healthcare (LSE: IHR) and Target Healthcare (LSE: THRL). Target, with £600m of property assets and £100m of net debt, operates 69 purpose-built care homes. Impact, with £311m of property assets and some £10m of net cash, owns 84 care homes and two healthcare facilities leased to the NHS. In both cases, the care homes are leased to high-quality operators for the long term, with built-in rental increases. Both shares seem attractive, with Target trading on a 7% premium to NAV and yielding 5.8%, while Impact trades on a 2% premium and yields 5.7%.

Note, however, that the number of care beds in the UK has fallen some 20% since its peak of around 550,000 in 1997. The NHS and local authorities have not been prepared to increase payments to operators by enough to cover escalating costs. In 2011 Southern Cross got into trouble amid an 8% drop in occupancy, the result of fewer referrals due to public-spending cuts. It could not pay its escalating rent bill and became insolvent. Well-run care homes are the most cost-effective way of caring for the elderly, but governments have repeatedly pursued the false economy of squeezing the private operators, who account for nearly all capacity. If this keeps happening, Target and Impact could find their rental income under pressure from struggling operators.

Businesses need more storage space

The self-storage market conjures up images of warehouses crammed with personal possessions. That, however, probably only accounts for a small part of the UK’s 20 million square feet of lettable area, with rates varying from £16 per square foot (sq ft)in Scotland to £28 in London. Personal storage is an important part of the market, but the business market is key. For small businesses, storing goods, records and stock at a self-storage unit or lock-up garage is likely to prove much cheaper than doing so at an office or in a shop, particularly with the increasing number of online entrepreneurs operating from home.

Hence the success of the two listed specialists, Safestore (LSE: SAFE) and Big Yellow (LSE: BYG), trading at premiums of 52% and 75% to NAV and yielding 2.2% and 2.8% respectively. Safestore, with 149 stores (including 22 in the Paris region) has 6.5 million sq ft of lettable area valued at £1.4bn and Big Yellow, with 75 stores, has 4.6 million sq ft valued at £1.5bn.

Big Yellow’s recent interim results revealed revenue and profit growth of 3.4% and 6% respectively, thanks to a small increase in like-for-like occupancy and a 1.9% increase in rent per sq ft. Lettable area increased only 0.7%, although there are 13 development sites, of which six have planning permission. Big Yellow also owns 20% of Armadillo, with 25 stores, which it presumably hopes to buy the rest of. That would give it 6.6 million sq ft in all.

Safestore’s recent final results showed a 5.6% increase in revenue and a rise in earnings per share of 6.3%, thanks to increases of 3.5% in average occupancy and a 1% in average rates. It plans four new stores in 2019/2020, but insists that its “top priority remains the growth opportunity of the 1.5 million sq ft of currently unlet space”. Big Yellow’s occupancy of 83.4% is higher, despite its larger stores, giving less unlet potential and its net rent per sq ft of £27.73 is 6% higher than Safestore’s, despite the latter’s focus on London and the southeast (70 stores). Both shares trade on 27 to 28 times underlying earnings, so they look expensive despite the solid record and prospects.

ASR strategist Zahra Ward-Murphy acknowledges that “the beds, meds and sheds theme is not new and these sectors have been outperforming for some time. Nonetheless, we like these sectors because they are underpinned by secular demand drivers and therefore should prove relatively resilient to any further slowdown in growth”. Business risks look low and dividend yields are reasonable in relation to low interest rates and bond yields, while dividends should climb steadily.

However, with the exception of the recovery story of Empiric and the historically risky care-home owners, valuations are high and vulnerable to market setbacks, so investors should wait for the next general sell-off before eyeing them up.

By Max King

Source: Money Week

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Commercial estate agents keen for approval rates of planning permissions

The majority of commercial estate agents (74%) would like to access data where they can easily see the approval and refusal rate of commercial property planning permissions, research by SavoyStewart has found.

Some 69% think there needs to be improved data when trying to identify the average price per square foot that commercial properties have sold for in any given area.

Darren Best, managing director of SavoyStewart, said: “Data has revolutionised the property industry. Providing key analytics and metrics on various variables that are enabling property professionals to make more informed decisions.

“As the quantity and quality of data grows, there are various aspects with regards to data that commercial property professionals wish there was more of or could be more fine-tuned to provide greater insights.

“This research certainly highlights the type of data that property professionals hope is more easily available in 2020. With some very surprising outcomes.”

Similarly, 63% desire data that will allow them to determine the average asking price per square feet that commercial properties in any set location are commanding.

Interestingly, over half (51%) would like to gain more data that highlights the commercial property crime statistics for different postcodes.

Some 40% feel the same about data that will enable them to more accurately assess the average internet speeds by postcodes.

Alternatively, just under a third (32%) feel more data is required on 5-year capital growth projections for commercial property in any given postcode.

By Michael Lloyd

Source: Mortgage Introducer

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‘Outstanding’ final quarter for north’s commercial property market

A SPRINT finish final quarter saw commercial property investment volume in Northern Ireland complete at £215.1 million last year – 19 per cent above 2018 though 4 per cent below the ten-year average, according to new research from Lambert Smith Hampton.

Its Investment Transactions bulletin showed that despite an outstanding final quarter with volume of almost £91m, the uncertain local and national political climate continued to weigh on volume with 2019 annual volume the second lowest since 2013.

Retail retained its place as the dominant asset class in Northern Ireland, with £92.5m of transactions accounting for 43 per cent of volume in the year due to two large fourth quarter retail park transactions. Throughout the first three quarters of the year, the highest proportion of volume had been in the office sector with Belfast city centre office investments remaining the most in demand asset class.

Despite a challenging retail market, three retail parks transacted in the latter half of 2019. In the largest deal, Sprucefield retail park in Lisburn was bought by New River Retail for £40m (yield 8.71 per cent), Crescent Link retail park in Derry was purchased by David Samuel Properties for £30m (11.50 per cent yield) and Clandeboye retail park by Harry Corry Pension Fund for £8.7m (13.50 per cent yield).

Office transactions this year totalled £74.1m, the highest volume in the office sector on record, boosted by Citibank’s purchase of their Belfast headquarters, the Gateway Office in the Titanic Quarter, for £34m (5.48 per cent yield). Other notable office transactions included a local government department’s £16.0m purchase of James House at the Gasworks and Vanrath Recruitment’s £12.5m purchase of Victoria House.

2019 saw a number of office assets purchased by owner occupiers for a combined total of £62.8m, including the aforementioned Gateway Office, James House and Victoria House.

As usual, local investors were the most active investor type. By comparison to 2018, activity from this group was subdued with the number of transactions down 38 per cent and volume down 23 per cent. There were a number of higher value assets purchased by private investors including Antrim Business Park for £12.5m (14.5 per cent yield) and Timber Quay in Derry for £5.3m (11.5 per cent).

At £26.2m industrial volume was at its highest for the decade in 2019, with both propcos and private investors purchasing in this sector. In Armagh, 35 Moy Road was purchased by David Samuel Properties for £6.3m (7.28 per cent yield) and CD Group, Mallusk by Alterity Investments for £2.6m (7.23 per cent).

Martin McCloy, director of capital markets, Lambert Smith Hampton, said: “Q4 provided a strong finish to what was a difficult year for the investment market. The extension of the Brexit deadline, the lack of a Stormont executive and the prolonged uncertainty delayed investment decisions in 2019.

“Yet demand remained constant with potential investors in Northern Ireland particularly seeking secure long-term income or high quality office investments.

“While retail was again the dominant asset class by volume, this was as a result of a small number of large transactions rather than a signal of renewed attractiveness in what is still a challenging sector. Core assets remain attractive but pricing is key.”

He added: “It is anticipated that the ending of local political uncertainty and increased clarity on the Brexit process will boost investor confidence, translating into a substantial release of pent-up demand and a busier 2020.”

By Martin McCloy

Source: Irish News

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2020 will be ‘year of opportunity’ for north’s commercial property market

THE north’s commercial property market ended the year with a much needed boost with the sales of Sprucefield retail park in Lisburn by Intu and Crescent Link Retail in Derry by the Lotus Group.

The combined value of these deals, at £70 million, brought the total value of commercial property investments in Northern Ireland for 2019 to just over £210m.

Property investment at this level is a considerable improvement on levels seen in 2018 at £165m, though there is a long way to go to reach the five-year average at just over £300m a year.

The subdued level of investment in 2019 is not surprising given the uncertainty around Brexit over the last few years, and we would expect investment levels to bounce back strongly this year given the strong mandate the Conservative Party received in the recent general election and the relatively stable macro-economic outlook

The office sector again performed strongly in 2019 with take up of 517,000 sq ft, well ahead of the five year average. Significant deals throughout the year included the signing of leases by Deloitte for 80,000 sq ft in the Ewart Building on Bedford Street, PwC taking the remaining 46,000 sq ft in Merchant Square and the letting by Kilmona of the entirety of Chichester House on Chichester Street to Rapid 7.

The outlook for 2020 for the office sector also looks strong with stated requirements in the market in excess of 400,000 sq ft including the NI Civil Service Requirement for 161,500 sq ft and the as yet unsatisfied Citi requirement for 120,000 sq ft.

Available prime office stock is as usual fairly limited though buildings including The Sixth, Paper Exchange and The Mercantile all in prime locations could be brought on stream this year subject to suitable pre lets.

Trends in the office occupier market are set to continue with co working/serviced office providers predicted to continue their significant expansion throughout the UK.

Technology is as ever set to change the way we work though it is unlikely to affect the demand for office space in the short to medium term as office workers need to interact with each other in an easily accessible work enhancing environment.

The continuing challenges in the retail market will create opportunities both for successful retailers to relocate to better position and for investors who are prepared to look at the sector. There will be undoubtedly be a need for alternative uses for retail space in both suburban shopping centres and retail parks but also in our towns and cities given that the prime retail areas are becoming smaller.

In order for our bricks and mortar retailers to successfully continue to compete with the steady advance of the internet, our government will have to look at the level of rates charged to retailers and work out a way to balance the playing field with their internet competitors. though where this sits on the level of government priorities remains to be seen.

On balance, the outlook for 2020 is a positive one and we look forward to the challenges that the year ahead will bring.

By Declan Flynn

Source: Irish News

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Why You Should Use A Commercial Finance Broker – The Benefits Of Working With A Mortgage Broker

Working with a commercial finance broker has many benefits other than the ones that are obvious. Here’s why and how it can save you a great deal of time, money and hassle.

The commercial finance sector has long been a mystery to most businesses that have wanted to borrow money from time to time. The days of simply walking into your local bank and finalising a handshake deal with the manager are long gone. Banks – despite their best efforts – are hardly able anymore to cater to the huge capital demands that UK businesses have.

Naturally, private lenders have managed to fill this gap in supply. But that has also spelt trouble for the borrowers in terms of predatory lending and other ills. Moreover, many borrowing businesses don’t have at their disposal the necessary experience to understand all the aspects involved in a commercial loan. This is where commercial finance brokers come into play.

There are many reasons why you should use the services of an experienced, responsible and licenced broker.

Before We Start – What Is A Mortgage Broker (Or Finance Broker)?

Many people – especially those who haven’t borrowed before – have a flawed understanding what finance brokers really do.

In the simplest of words, a finance broker or a mortgage broker is a professional entity (an individual or a firm) licenced to offer expert finance advice and match your loan requirements with suitable offers from lenders.

Brokers operate in almost every lending sphere – from small-scale personal finance to large-scale commercial finance. Commercial finance brokers (like Commercial Finance Network) specialise in helping businesses find just the right kind of finance deal.

While the finer aspects of why you should use the services of a broker will be discussed below, it should suffice for now to say that an experienced broker can help your business through tricky situations of cash and/or credit crunch.

Why Approaching A Lender Directly May Not Always Work

Getting a business loan used to be a straightforward affair not too long ago. Just contact the local bank branch or high street lender, let them know of your requirements and accept one of their ready-made finance products – easy as you like.

The simplicity in this structure, however, came at your expense. Getting into a retail finance deal is almost always a bad idea for a business because it’s not only more expensive, it fails to bring to your notice all the possible options you can choose from.

In addition, approaching lenders directly is a tedious and time-consuming process, regardless of how straightforward it may seem to be. If a lender turns your application down, you have to repeat the whole process again, leading to multiple soft and hard credit checks that leave their footprints all over your credit report.

Here’s why using an experienced broker gives your loan application an edge.

1. Brokers Make Borrowing Easier, Faster And Safer

Approaching a lender directly for a commercial loan may not always be the best idea, as we just discussed. It can not only drain your resources quickly; it also almost always leads to you getting a rather unfair deal.

Commercial finance brokers help you avoid this scenario by making the entire borrowing process smoother, faster and safer. Commercial Finance Network, for example, is among the handful of brokers out there who have an impeccable track record of turning around loan applications within 24 hours.

Moreover, all licenced brokers are obligated to treat your personal details with utmost care. When you use a broker’s services, you’re still in charge of your application, at all times. 

2. You Get To Choose From Offers You Would Otherwise Have Never Seen

This is probably the most important benefit of using commercial finance broker services.

When you approach a lender directly, they can only produce quotes that are drawn from the products they already offer. There is no room for customisation, and you will often have to make do with incompatible loan products just to save the day.

For example, if you’re applying for asset finance and the lender only offers lump-sum business loans, you will be left with an offer that makes no sense in terms of your requirements.

Working with a broker eliminates this problem altogether. Many lenders work exclusively with brokers and offer broker-only finance products that wouldn’t be accessible to you if you were to approach them on your own.

You can go a step ahead and work with a whole of market commercial finance broker like Commercial Finance Network to make sure that you receive offers from UK-wide lenders.

3. Brokers Can Save You Money

If you’re worried about broker fees and charges, you shouldn’t be.

Brokers who work with specialist lenders are often able to produce quotes that are much cheaper than their retail counterparts. Eventually, the money you save in the form of lower interest rates and faster disbursals outweighs any broker fees you would be required to pay.

An FCA-regulated and responsible broker like Commercial Finance Network will never charge you hidden fees. You will know exactly how much you’ll be paying before you get into a deal.

4. You Can Access Specialist Lenders

Specialist lenders are typically small to medium sized lenders who only offer highly specialised finance products like invoice finance, development finance and HMO loans.

Since it saves them a great deal of hassle, many such specialist lenders prefer to work exclusively with brokers. In essence, using a broker’s services helps you unlock offers from specialist lenders.

Working with specialist lenders also means that the lender can offer invaluable business insights and advice, making every loan offer that much more rewarding.

5. You Cannot Buy Experience

A reputed broker brings with them years’ worth of experience that you cannot really put a monetary value on.

Such brokers know how to navigate through tricky finance situations that you wouldn’t otherwise be able to handle on your own.

Whether you want to fast-track your BTL loan, get a business loan despite poor credit history, seek guidance regarding a particularly unique valuation and planning permission problem or customise your repayment plan based on your income, an experienced broker like Commercial Finance Network can certainly help you.

6. Brokers Understand Your Affordability Better

Unfortunately, over the years, both borrowers and lenders have time and again managed to downplay the importance of understanding creditworthiness and affordability. This has, quite predictably, paved the way for unreasonably structured, unfairly priced loans that – at times – border on being predatory.

Using a commercial finance broker means you conveniently stay away from this debt trap. Brokers know how to best judge your affordability based on your income, your assets and your spending, allowing them to only produce offers that are in your best interests.

7. Brokers Can Offer Precious Financial Advice

There’s a world of difference between personal finance and commercial finance – a fact many borrowing businesses fail to take into account while applying for a loan.

Poor judgement and uninformed decisions lead to mistakes that the borrower has to live with for years, if not decades. You can get around this problem by soliciting financial advice from a responsible broker like Commercial Finance Network.

Summing Up – Here’s Why You Should Use A Commercial Finance Broker

  • Save time and energy
  • Choose from market-wide offers
  • Save money
  • Benefit from the broker’s experience and expertise
  • Stay away from unaffordable loans
  • Avail expert advice from FCA regulated professionals

Choosing A Commercial Finance Broker – Things To Keep In Mind

Now that we’ve talked at length about what a commercial finance broker brings to the table for you, it’s time to see what you should look for while choosing one.

There are no yardsticks or guidelines set in stone here, but the following points will certainly help you make an informed and educated choice.

1. Are They Licenced And Regulated By The FCA?

This is perhaps the most important question you should ask.

The Financial Conduct Authority is the sole and stringent regulator of all commercial finance activities in the UK. As a rule of thumb, you should refrain from working with brokers who don’t have the FCA licence.

How To Check If Your Broker Is FCA Regulated

Checking whether your broker is FCA-regulated or not is easy. For starters, regulated brokers will have the FCA reference number and other associated information prominently displayed on their website. If they haven’t, you can always contact them regarding the status of their licence.

You can cross-check this information by visiting the FCA register.

For example, Commercial Finance Network is FCA regulated with reference number 796413.

2. Are They Associated With Any Trade Organisations Of Repute?

This isn’t really a non-negotiable, but it still gives you a good idea of the standing the broker enjoys in the industry.

Look for any certifications and memberships that lend credibility to the broker’s operations.

For example, Commercial Finance Network is a proud member of the National Association of Commercial Finance Brokers (NACFB), the largest trade association of UK-wide brokers.

3. Do They Handle Your Data Responsibly?

All businesses are required to handle your personal information and other data they collect responsibly. This applies even more so for brokers who need to collect your important personal and financial details.

When you visit your broker’s website, look for the data protection policy and/or privacy policy page. It is usually located in the footer section of the website.

A responsible broker is typically GDPR compliant and registered with the Information Commissioner’s Office (ICO).

For example, the Commercial Finance Network website is fully GDPR compliant and registered with the ICO.

4. Do They Specialise In Commercial Finance?

Many brokers out there try very hard to merge personal finance products with their commercial counterparts. This isn’t usually a good idea since commercial finance is much more robust in terms of product flexibility and variety.

If your broker offers exclusively commercial finance products like asset finance, business loans, HMO finance among others, it’s a good starting point.

5. Can They Compare The Market?

Whole of market brokers can compare the market and find lenders who are willing to base their quotes on your requirements. In the long run, this has an immense positive impact on your borrowings.

6. How Does It All Work?

Ask your broker the following questions to understand how their services work:

  • Will you need to visit their office?
  • What paperwork does the process involve?
  • Can you submit the necessary documents online?
  • What about the turnaround time on your application?

7. What Are The Broker Charges And Fees?

It’s imperative that you know all about the charges and fees you’ll be required to pay. Many brokers offer no-obligation quotes, while some may require you to pay a processing/admin fee even when you decide not to accept the loan offer.

It’s also important to know and understand when the charges will kick in – before you apply, after you apply or after you accept an offer.

Working With A Responsible Broker Means Working On Your Own Terms

Getting into a finance deal that isn’t cut out for your business’ requirements is never worth it. You will not only be required to repay more than you really should, you will also miss out on a number of features that specialist lenders can offer you.

Commercial Finance Network – a leading whole of market broker in the UK – makes your life easier by finding just the right kind of loan offers for you. Our commercial finance services span the entire range – from all-purpose commercial finance and mortgages to customised asset finance and invoice finance solutions.

24-hour processing, high approval rates, cheap interest rates and flexible repayment – we’ve got everything your business needs and more. Complete this short online form to get started or call us on 03303 122 646 to speak with a Specialist Mortgage Advisor now!

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London’s commercial property market bounces back in fourth quarter

Investment in London’s commercial property market rebounded in the fourth quarter as the capital’s risk profile began to improve, strengthened by Boris Johnson securing a majority in last week’s General Election.

Investment jumped 15 per cent compared to the previous quarter, rising to almost £2.8bn, according to preliminary figures.

Property experts at estate agents Knight Frank have forecast that the boom will continue next year, driven by the result of the General Election and the increased certainty surrounding Brexit going forward.

Knight Frank head of capital markets Nick Braybrook said: “Investors have been circling the market in increasing numbers over the last few months, with international capital drawn in by attractive yields and the currency discount compared to other global cities.

“London’s perceived risk profile has improved tremendously through the second half of 2019 whilst geopolitical tensions in markets from Asia to the Middle East have eroded their relative attractiveness boosting the appeal of London.”

Faisal Durrani, head of London commercial research added: “The political uncertainty certainly dampened activity for most of 2019, but a shortage of assets for sale exacerbated this.

“With the decisive Conservative majority secured in the General Election last week, confidence is expected to rapidly return into the market, something investors have been hankering for.”

Figures published by CBRE earlier this week also painted a positive picture for London’s commercial property market.

The data showed that central London office take-up soared 31 per cent between October and November, driven by a growth in the capital’s fintech sector.

Office take-up jumped to 900,000 sq ft, while the year on year increase was five per cent.

By Jessica Clark

Source: City AM

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Edinburgh rebound boosts Scottish commercial property sales to £1.2bn

A Scottish Property Federation (SPF) analysis of the latest commercial property sales figures has shown a rebound in the total value of sales in Scotland in Q3 (July to September) 2019.

In total, £1.2 billion was transacted in the quarter, nearly double the total value of commercial property sales in Q2 (April to June) 2019.

Edinburgh was a key driver of the increase in the value of commercial property sales, with sales in the capital more than tripling to £462 million in Q3 2019 when compared to the previous quarter. Partly as a result of several high-value transactions, Edinburgh dominated the commercial property market in Q3 2019, with a 38% share of the Scottish market by value.

Glasgow also continued the positive momentum with £216m transacted in the city during Q3 2019. Its total value increased by £44m on Q2 2019 and £63m against the same period in 2018.

Commercial property sales in Aberdeen remained steady at £32m. Aberdeen’s total value of sales rose slightly on Q2 2019 (by £2m) but remained £20m below values recorded in the same quarter last year.

Responding to the latest sales figures, David Melhuish, director of the Scottish Property Federation, said: “Q3 2019 was a strong quarter for commercial property sales; however, it comes on the back of a subdued first half of 2019, and the current one-year rolling total is still 3% lower than in the same period in 2018.

“We will be watching closely to see if this momentum can continue in the last quarter of the year, against the headwinds of continued political uncertainty and low economic growth.”

Cameron Stott, director at commercial property agency JLL, added: “The large volume by value has been driven by substantial asset sales which have offered investors either long secure income or the asset is in a prime location.

“This volume also reflects how attractive Edinburgh continues to be notwithstanding the political uncertainty.

“It is also interesting to note the continued interest from foreign investors no doubt seeing the UK as value for money but also benefiting from a more attractive yield compared to many other European cities.”

Scottish commercial property investment volumes also rose sharply on both a quarterly and an annual basis, according to property data experts CoStar UK. Investors spent £798m in Q3 2019, the highest quarterly amount since Q1 2018.

CoStar also highlighted that Scotland attracted more investment than any other UK region outside of London and the South East, with volumes heavily supported by a continuing flow of capital from overseas. It was reported that foreign investors were behind over half of all acquisitions by value, with European and American investors involved in sizeable purchases.

Source: Scottish Construction Now

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RICS: Surveyors sense a downturn of commercial property market

The Brexit impasse is contributing to perceptions that the commercial property market is in the downturn phase of the property cycle, the RICS UK Commercial Property Market Survey has revealed.

Figures for Q3 2019 showed that 62% of surveyors sensed the overall market is in a downturn phase of the property cycle.

Brexit was suggested as having an increasingly detrimental impact on market activity.

Tarrant Parsons, economist at RICS, said: “Although a clear majority of respondents now perceive the market to be in a downturn, the fact that capital value expectations are still positive in many parts of the country suggests a relatively soft landing for the commercial real estate sector is anticipated overall.

“It remains to be seen what impact the latest Brexit developments have on confidence across the sector, but with the picture unlikely to become clear until into the New Year it may well mean hesitation continues over the near term.”

Tenant demand reportedly fell at the headline level with the net balance slipping to -19%.

Interest in the commercial property market fell at a faster pace last quarter with -15% more surveyors seeing a fall in investment enquiries.

By Michael Lloyd

Source: Mortgage Introducer

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Demand for commercial property at lowest level since 2012, says industry report

Demand for office space in the South West has slipped to its lowest reading since September 2012, the Royal Institute of Chartered Surveyors’ UK Commercial Market Survey has revealed.

The survey added that the current impasse over Brexit is contributing to perceptions that the South West commercial property market is in the downturn phase of the property cycle.

The RICS report for Q3 2019 said that enquiries from investors are down at headline level and that 53 per cent of respondents believe that the market to be on a downward trajectory.

Occupier demand in the South West fell at the headline level once again, with the net balance slipping to -19 per cent, the lowest reading since June 2012.

Once again, the retail sector continues to drive the overall decline (net balance -62 per cent, compared to -54% in Q2).

However, demand for South West office space also fell during Q3, with a net balance of -8 per cent compared to -1 per cent in Q2.

Demand for industrial space has a net balance in the region of +12 per cent.

The region’s retail sector continues to have large numbers of vacancies coming to market, prompting another increase in incentive packages on offer to prospective tenants.

Inducements are also on offer in the office sector with 17 per cent of respondents reporting a rise in the packages.

South West respondents to the survey project that rents for the coming three months are expected to rise in the industrial sector, the only sector to see any notable interest from tenants.

Unsurprisingly, the retail sector isn’t expected to improve, some 63 per cent of respondents in the region expect to see further reductions in rents across the market.

Across the UK, retail rents are reading at the lowest level since the financial crisis (Q1 2009).

Looking further ahead, local respondents expect prime and secondary retail rents to fall for the year ahead.

The outlook has turned negative for secondary office rents in the South West, driven by weakening expectations in London.

By way of contrast, the industrial sector continues to return rental growth projections for the coming 12 months in the region.

Interest in investing in the local commercial property market fell again this quarter, with -5 per cent more South West respondents seeing a fall in investment enquiries.

Overseas investment demand also declined across the sectors with a net balance of -9 per cent of respondents seeing a fall.

Tarrant Parsons, RICS Economist, said: “Although a clear majority of respondents now perceive the market to be in a downturn, the fact that capital value expectations are still positive in many parts of the country suggests a relatively soft landing for the commercial real estate sector is anticipated overall.

“That said, the fallout for retail is altogether more severe. It remains to be seen what impact the latest Brexit developments have on confidence across the sector, but with the picture unlikely to become clear until into the New Year it may well mean hesitation continues over the near term.”

Martin Smalley of Gleeds in Bristol added: “Brexit unsurprisingly has created an atmosphere of uncertainty in the regions.

“There are however hotspots around areas of significant infrastructure investment like Hinckley Point C which is fuelling growth across the commercial, retail, industrial and residential sectors.”

By James Young

Source: Punchline Gloucester

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Brexit impasse ‘impacting Scottish commercial property market’

THE Brexit impasse is contributing to perceptions that the commercial property market in Scotland is in the midst of a downturn.

The latest Royal Institution of Chartered Surveyors commercial property market survey has found anecdotal evidence suggesting that the process to leave the European Union is having an increasingly detrimental impact on market activity, with inquiries from potential investors in the third quarter lower than during the previous three months.

The latest results show that half of respondents in Scotland sense the overall market is in the downturn phase.

The highest proportion of respondents in Scotland since 2016 in the investment market said that inquiries from potential investors were lower than in the previous quarter.

The net balance for overall investment inquiries in Scotland during the period was -34%, meaning that 34% more respondents said that investment inquiries fell than said they rose.

The retail sector continues to drive the overall decline, with the weakest reading since 2008, showing a net balance of -70%, which is the weakest across the UK.

Demand for office and industrial space in Scotland was reported to be broadly flat.

Interest in investing in retail was the weakest according to respondents, but investment inquiries were also reported to have fallen in the industrial, where there wasa net balance of -14%, and office, where it was a net balance of -20%, sectors.

In the occupier market, tenant demand reportedly fell at the headline level in Scotland for the fourth consecutive quarter, with the net balance slipping to -22%, from -3% previously, RICS said.

Scottish surveyors are cautious looking ahead about rents in over the next quarter. The overall net balance for three-month rental expectations is its weakest since the second quarter in 2016 at -23%.

However, this is driven by pessimism regarding retail rents, with a net balance of -65%. Expectations for office and industrial rents are broadly flat.

RICS said Scottish respondents are more positive about the value of industrial and office property, with the balance of respondents pointing to modest growth in capital values in both sectors in the near term.

Richard Smith, of Allied Surveyors in Inverness, said: “The market over the last three months has been affected by political uncertainty. Clients tell us that they will invest when the uncertainty is removed, regardless of how that is achieved.”

David Castles, of Ian Philp Glasgow, said: “Office and industrial sector capital values will improve but supply of prime office developments is restricted, and more investment is required which hopefully will improve once market uncertainty is reduced.”

Tarrant Parsons, RICS economist, said: “Although half of respondents in Scotland now perceive the market to be in a downturn, the fact that capital value expectations are still positive suggests a relatively soft landing for the commercial real estate sector is anticipated overall.”

Meanwhile, research from Grant Property has shown investors from South East Asia are cashing in on the opportunities provided by a drop in the value of the British pound and increasing yields and rents in the UK buy-to-let market, especially with student flats.

The firm reported a surge of interest from Hong Kong and Singapore as new and existing investors are purchasing more buy-to-let properties to add to their portfolios. An increase in rents as high as 15% over the last 12 months alone, combined with steady long-term capital growth on average 7% per annum, are factors which are making UK property an appealing investment prospect, it said.

Peter Grant, founder of Grant Property, said: “In the last year we have sold over £38 million worth of properties to overseas investors and we are currently dealing with 25% more enquiries than this time last year.

“Investors see the uncertainty of Brexit as an advantage and are capitalising on the opportunity to snap up traditional flats in UK cities, particularly where there is a student population.”

By Brian Donnelly

Source: Herald Scotland