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Commercial property: High street challenges need addressed

The currently volatile environment for UK retailers presents a significant challenge to the commercial property sector. Along with the estimated 85,000 jobs lost in UK retailing in 2018 is the worrying rise in empty commercial units.

Figures published in the Scottish Retail Consortium-Springboard Footfall and Vacancies Monitor show hat one in eight high street shop premises lay vacant last month, with a 12 per cent town centre vacancy rate in Scotland, up the 11.1 per cent recorded last October.

Steps are being taken across the nation to repurpose some of these vacant premises for residential, hotel, leisure or community use.

However, UK retailers must also continue to repurpose their businesses to ensure they are relevant to the changing nature of consumer demands.

Many of those which managed to avoid insolvency last year are now embarking on store closure plans and rationalising their portfolios. The trend of traditional retailers extending their online offering also continues, with some smaller stores diversifying by installing convenient customer options such as Amazon lockers and becoming click-and-collect points for larger retailers.

Technological advances, including the use of mobile payment, scan and payment checkout apps, are also making the sector more efficient, while further progress in areas such as VR and AI offers an additional strand of support.

In spite of these positive developments, there is no doubt that many of the larger retailers will continue to struggle with the size and cost of their property portfolios. Debenhams is continuing discussions with its lenders and is not ruling out a company voluntary arrangement, while the new management at Marks and Spencer is promising dramatic changes in range, style and customer focus.

Meanwhile, other big high street names seek to negotiate reduced rents with their landlords to keep themselves trading. The changing nature of the marketplace requires retailers to make bold decisions to entice consumers and leverage value from their physical premises.

Apple and Selfridges are both successfully doing this by making shopping at their outlets an experience. Selfridges credits its successful Christmas trading period to the staging of festive events which drove people into its stores, and Apple delivers added value for customers in its premises by holding free events.

The progression of some online retailers moving to a bricks and mortar model could also make a positive impact on the commercial property sector. Amazon Go is reportedly looking at expanding its app-based convenience store brand into London with the potential of Amazon Books stores opening in the UK.

Physical premises supported by a strong online presence point to the future direction of travel in retailing. While we expect more casualties in the year ahead, the changes that are currently being implemented provides some comfort to commercial property landlords as retailing continues its challenging evolution.

The UK retail market is one of the most dynamic in the world and is the biggest employer in Britain; it is also one of the most adaptive to change. But landlords and tenants must act quickly to stem the tide of store closures and declining footfalls.

Source: Scotsman

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Struggling retail sector dragging down north’s commercial property sector

A WEAK retail sector is dragging down an otherwise strong commercial property market in the north, according to a new report.

The latest RICS and Ulster Bank Commercial Market Survey, covering the last three months of 2018, shows

a decline in demand for retail space, largely driven by changing shopping habits.

The figures further reveal that enquiries for retail property have fallen for the fourth consecutive quarter.

The outlook for the industry is no brighter, with an expectation retail rents will continue to fall over the next three months.

The retail performance is in direct contrast to the overall picture, with the north one of only a small number of UK regions to report an increase in occupier demand (10 per cent of respondents)

Investment enquiries are also reported to have picked up for the first time in nine months.

The encouraging figures were boosted by the industrial and office sectors,which both reported an increase in demand, the former from a net balance of 26 per cent of respondents and the latter, 48 per cent.

The rental outlook is also positive for the next three months, particularly within the office sector, while

enquiries regarding office and industrial assets are on the increase.

RICS Northern Ireland chairman, Brian Henning said the retail figures mar an otherwise positive market performance.

“Changes in the preferences and behaviours of consumers are resulting in a continually challenging landscape for the retail sector,” Mr Henning said.

“On the other hand, sentiment amongst surveyors remains relatively positive in the industrial and office sectors, which is encouraging in the face of uncertainty. Retail aside, expectations for the market are also relatively upbeat considering the landscape.”

Gary Barr, relationship director for commercial real estate at Ulster Bank added:

“The downturn in high street retail has been most keenly felt in our secondary centres. Investor demand for office and industrial has remained robust and prime assets in Belfast city centre are most in demand.”

Source: Irish News

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‘Dark cloud above our heads in form of Brexit’ after spectacular year in commercial property

SCOTLAND’S commercial property sector rode a financial services wave after Barclays’ Glasgow acquisition but while the “mood music is very positive, ultimately there is a dark cloud above our heads in the form of Brexit”.

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Decline in new UK commercial property construction work within private sector

The results of the EU referendum have been detrimental to the commercial property sector with the number of constructions continually decreasing, according to an analysis of the figures by Savoy Stewart.

With figures from the Office of National Statistics (ONS) showing a monthly decline in the number of new UK commercial construction work undertaken by the private sector since December 2017, the property firm analysed the number of commercial properties available to let in 20 of the biggest cities in the UK.

As expected, the city with the highest number of commercial properties to let was England’s capital city London, which had 6,137 properties in November 2018 available for businesses to rent.  However, figures from estate advisory organisation Colliers claims that 90 percent of London office availability is constituted by second-hand product, while new/refurbished availability is down by over a third in the past year.

Scotland’s capital city Edinburgh had the second lowest number of commercial properties on the market to let (133). And although Edinburgh’s figures seem to be less intriguing than anticipated, it seems Scottish commercial real estate has experienced a bounce back, with a total return of 1.7 percent in the third quarter of 2018; a 1.4 percent rebound in the second quarter.

The figures, which were extracted from property website Zoopla for the month of November 2018 also showed that The cities with the highest number of commercial properties to let in November 2018 on Zoopla were: London (6,137), Derby (822), Birmingham (724), Manchester (501) and Leeds (481).

The cities with the lowest number of commercial properties to let in November 2018 were: Preston (153), Coventry (145), Belfast (145), Edinburgh (133) and Newport (128).

Source: Work & Place

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How is the UK commercial property sector performing?

The UK commercial property market is rapidly changing and facing highly uncertain times in the face of Brexit. We have a look at how the industry is evolving and what commercial property stocks to watch.

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Get ready for the commercial property data revolution

In these uncertain times, modern commercial real estate landlords and operators have turned to technology and data to weather the storm and gain a competitive advantage. Those that do so are arming their companies with an ability to quickly pivot operating models, reallocate investment to counter risk and capitalise on opportunity.

The right software lets you future-proof your business, enables you to understand performance in real-time and most importantly helps you predict what’s next – the biggest hotspots and opportunities, which team members are doing well, and who needs some support.

You don’t have to look far to see the transformative power of data and examples of how it is successfully being applied to drive digital transformation. Take the financial sector, where unleashing the power of data has not only streamlined workflows but also enabled firms to grow their businesses through powerful AI applications that personalise their services.

According to a 2017 Forrester report, there is an increasing gap between financial firms that embrace technology to fuel growth and business transformation and institutions that continue to do business in traditional ways.

The evolution of the stock market also highlights the value that technology and actionable data unlocks. Look at the New York Stock Exchange. Thirty years ago it was characterised by highly inefficient and manual processes and opaque information. Today? Technology has transformed the way the market operates and traders are able to leverage real-time data and algorithmic trading to execute deals in nanoseconds.

The commercial property sector is making great strides in using new software offerings such as leasing and asset management platforms to capture and analyse data. Landlords and brokers are using the resulting insights to make better decisions that move the needle. We’re fast approaching the next major frontier – market benchmarks.

Using real-time market data to make better decisions has been the standard in our own backyard for other property types such as multi-family and hospitality for some time. RealPage Yieldstar® helps PRS owners leverage market data to determine pricing in real-time and for hospitality the STR Global Report helps landlords benchmark a hotel’s occupancy or revenue that day.

Unlike PRS real estate or the hotel space, when it comes to office, industrial or retail properties, market leasing data on pricing, tenant demand or operating efficiency within buildings is neither transparent to the market nor recent.

We are working hard to develop the ultimate market benchmark. In June, we announced plans to launch VTS MarketView™ – the industry’s first real-time benchmarking and market analytics. For the first time, VTS customers will be able to compare their own property-level performance against market-wide data on our platform.

Aggregated and anonymised, this data and insight will be embedded in users’ daily leasing and asset management workflows and presented in context to drive better decisions, informed by key market-wide metrics such as net effective rents, concessions, leasing spreads and velocity, level of tour requests and deal conversion rates.

For the commercial property industry, the possibilities for how technology and data can be applied are endless. For example, AI could be applied to real-time market benchmarks to provide landlords with property-specific predictions and recommendations for maximising asset value.

These are exciting times, but not without risk. Now, more than ever, it’s time to embrace the data revolution or risk being left behind.

Source: Property Week

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Boom time for commercial property sectors in Glasgow and Edinburgh

Glasgow has just witnessed a record quarter for office deals, with city centre occupier take-up exceeding one million sq ft for the year to date, according to data from JLL.

Thanks in large part to Barclays, which re-defines the ‘city centre’ parameters to cross the river Clyde, total take-up across Glasgow’s city centre reached 614,466 sq ft between July and September, spread across 31 deals.

Glasgow’s record quarter for office transactions brings the city centre’s total take-up for the year to date to 1,192,689 sq ft, with three months of the year still remaining. By marked contrast, office occupier take-up for 2017 totalled 627,313 sq ft.

In the largest deal of the quarter, and the year so far, Barclays took a 470,000 sq ft pre-let at Buchanan Wharf. Other notable deals in the city include 60,000 sq ft take-up at 123 St Vincent Street, and Glasgow School of Art and CXP Limited both signing new deals for more than 10,000 sq ft of city centre space.

In the first six months of 2018, take-up of city centre office space amounted to 578,223 sq ft, which was already boosted by notable major pre-let activity to the HMRC at Atlantic Square, and Clydesdale Bank’s 110,955 sq ft pre-let at 177 Bothwell Street. JLL have been involved in four of the top five largest deals in 2018 to date, and almost a third of all transactions this quarter.

According to JLL, Glasgow’s office market is continuing to attract activity and proving itself to be a desirable location for business to operate.

Alistair Reid, director at JLL, said: “With total take-up already exceeding 1 million sq ft, we anticipate that 2018 will be the best year for office take-up in Glasgow in recorded history.

“From larger corporates and government departments to SMEs and fintech firms, requirements and new enquiries for city centre space remain strong. It’s inevitable that this demand will continue to impact supply, but with three new speculative developments in the offing, there is at least a pipeline of new build supply further down the line.”

Along the M8, JLL is reporting that Edinburgh’s commercial property market is maintaining its strong performance for office occupier take-up, transacting over 300,000 sq ft of office space during the last three months.

According to JLL, a strong third quarter ensured that Edinburgh has already broken the annual 10-year average, following a record-breaking 2017 in which 1,100,000 sq ft was transacted.

Total take-up in Edinburgh reached 301,713 sq ft between July and October, an increase of approximately 30% year-on-year, spread across 49 deals.

The largest occupier deals saw Royal London secure 47,000 sq ft at 22 Haymarket Yards, while Brodies pre-let 43,000 sq ft and Pinsent Masons pre-let 27,000 sq ft at Capital Square.

Despite the prospect of another bumper year for the capital’s office market, grade A availability and the pipeline of new office space remain a major problem.

Craig Watson, director at JLL said: “The rapid pre-letting of new stock coming onto the market, such as the Capital Square development, underlines the limited availability of prime Grade A stock in the city centre. There simply isn’t enough in the short-term.”

Source: The National

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Brexit and the City: Tracking the fortunes of London’s financial districts

Is London’s position as the largest international center of finance slipping as a result of Brexit?

London has been a critical artery for the flow of money around the world for centuries. The financial services sector accounts for about 12 percent of Britain’s economic output, employs about 1.1 million people and pays more taxes than any other industry.

From its traditional City heartland to the brash Canary Wharf skyscrapers and plush Mayfair townhouses, London represents one of the greatest concentrations of financial wealth on earth.

Its only rival, New York, is centred on American markets, while London has more banks than any other hub, dominates markets such as global foreign exchange and commercial insurance and is home to international bond trading and fund management.

But about a third of the transactions on its exchanges and in its trading rooms involve clients in the European Union. These may be jeopardized after Brexit unless Britain manages to maintain similar levels of access to the trading bloc.

The French finance minister predicts Paris will overtake London as Europe’s most important financial center in a few years, although supporters of leaving the EU say Britain will benefit over the long term by setting its own rules.

London remained top of the rankings in the annual Global Financial Centers Index released this week by Z/Yen Partners and the China Development Institute, although the gap between it and New York in second closed to one point on a scale of 1,000 and its rating rose by less than the other four top centers.

Reuters is publishing its second Brexit tracker, monitoring six indicators to help assess the City’s fortunes, taking a regular check on its pulse through public transport usage, bar and restaurant openings, commercial property prices and jobs.

Almost a year before Britain is due to leave the EU, the tracker suggests London’s financial districts have been held back, but there is no evidence of a mass exodus.

“London has not come close to taking a mortal blow or anything like it … The increasing uncertainty though over London’s future has led to a stall in its growth,” Michael Mainelli, Executive Chairman of Z/Yen, told Reuters.

Jobs leaving London?

Firms employing the bulk of UK-based workers in international finance told Reuters that the number of finance jobs they plan to shift out of Britain or create overseas by March 2019 due to Brexit has dropped to 5,000, half the figure six months ago.

This comes amid more conciliatory signals from British Prime Minister Theresa May, while progress in talks with the EU have prompted some companies to delay large staff moves.

The findings suggest that the first wave of job losses may be at the lower end of initial industry estimates, meaning London will keep its place as the continent’s top finance center in the short term.

London’s finance industry should emerge largely unscathed from Brexit even if thousands of jobs move, the City of London’s political leader Catherine McGuinness says, adding that it could take years to feel the full impact of Brexit.

“All the signs are that companies are just making plans to move the minimum necessary,” she told Reuters, adding “just because you can’t see a massive change suddenly happening you can’t assume everything is okay.”

Hiring numbers

The number of available jobs in London’s financial services industry fell the most in six years in 2017, said recruitment agency Morgan McKinley which hires staff in finance.

It bases its number on the overall volume of mandates it receives to find jobs and applies a multiplier based on its market share of London’s finance industry.

The recruiter found 82,147 new financial services jobs were created last year, a 12.45 percent drop on a year earlier. This is the lowest number of jobs available since 2011.

“Brexit has stalled the growth of jobs. Companies are reluctant to make major investment decisions at the moment,” said Hakan Enver, operations director at Morgan McKinley Financial Services, which carried out the survey.

Commercial property

Reuters obtained property data from Savills and Knight Frank, two of the biggest real estate firms in Britain. Savills calculates the value from all-known property deals within the City of London area.

Savills says commercial property prices in the City of London are now at the highest level since the third quarter of 2016, three months after the Brexit vote, driven by a surge in office purchasing and leasing in the final quarter of 2017.

The price of renting real estate in the City of London district rose 9.5 percent in the last three months of the year, climbing to 78 pounds ($107) per square foot, from 71.21 pounds in the third quarter of 2017, Savills says.

“There has been a lot of exaggeration about the demise of the City,” Philip Pearce, a director at Savills, said. “The expectation post-Brexit was the world would start draining away from the City, whereas the reverse has happened.”

In Canary Wharf, prices were also unchanged in 2017 compared with the year before, Knight Frank, whose data comes from landlords, developers and agents, says.

Going Underground

Some 400,000 journeys are recorded every day at the three main underground stations that serve the City and Canary Wharf.

Reuters filed Freedom of Information Act requests to Transport for London, to get this data which shows that the number of people using Bank and Monument stations is on course for its first fall since the final year of the financial crisis.

Travelers going in and out of Bank and Monument fell by a fifth in 2017 compared with 2016, the data shows. This follows an annual increase each year since 2009.

In Canary Wharf, the number of people using the station fell by 10 percent, while the number of people using London’s underground network fell about 2 percent overall last year.

Mike Brown, the commissioner for Transport for London, said it is struggling to explain the drop in passenger numbers.

“Is it an element of economic uncertainty? Is it a handful of jobs here or there maybe not being there this year, compared to last year, or is it actually just that people are working from home?” he said. “It is a bit difficult to be categoric.”

Canary Wharf’s owners did not respond to requests for comment.

City Airport

The number of passengers using London City Airport, a popular gateway for finance executives, fell for the first time since the final year of the 2007-2009 global financial crisis in 2017, its publicly available figures show.

The number of passengers at the airport, close to Canary Wharf’s financial district, fell 0.2 percent last year. That compares with an average annual 8.8 percent increase in the previous six years.

London City Airport said the stagnating numbers were partly caused by some airlines cutting routes.

“We are very confident about the long term future prospect of London City Airport and aviation in the UK, with passenger growth expected to resume in 2018,” a spokesman said.

Bar and restaurant openings

Reuters filed a Freedom of Information Act request to the City of London Corporation to find the number of new premises which have applied for license to sell alcohol and license renewals.

The number of venues, such as bars and restaurants, with license to sell alcohol in the City of London in 2017 fell 1.6 percent, data from the municipal local authority shows.

The number of venues applying for new licenses was flat compared with 2016, the data shows, although the City of London Corporation said such fluctuations were normal.

“As some establishments close and others open, it is inevitable that licensing renewal figures will fall and rise but overall, the number of licensed premises in the City has steadily increased in recent years,” it said in a statement.

Source: Business Insider

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‘Encouraging’ 2017 results for Scottish commercial property market

SCOTLAND’S commercial property market showed an “encouraging” six per cent annual total return in 2017.

Data from property consultant CBRE reveals the total 2017 return for Scotland was 6.8 per cent, comparing favourably with the UK’s 10.2 per cent.

Measured by the IPD Quarterly Index, the research found over the fourth quarter, the total property return was 2.1 per cent, up from 1.7 per cent in quarter three. This increase is attributed to improved capital growth, with average capital values up by 0.6 per cent. This represented the bulk of capital appreciation during the year, given the total uplift in 2017 was just 0.9 per cent over the calendar year.

Industrials have been the key differentiating factor in the UK’s relative outperformance against Scotland, with the pace of rental growth in the London and South East industrial markets notably outperforming rental growth in any other commercial real estate sector. However, for some other sectors, the performance gap between the UK and Scotland has narrowed, notably high-street shops and offices.

Office sector total returns for Q4 rose to 2.2 per cent, an increase from 1.6 per cent in Q3, representing the largest quarterly uplift in returns for any of the three principal sectors in Scotland. It was also the highest total return for the Scottish office sector since the final quarter of 2015. This led to an annual total return of 5.9 per cent in 2017, in contrast to -0.2 per cent in 2016. Despite capital value growth throughout the second half, it was not quite enough to reverse the loss incurred in the first half which felt the effects of Brexit.

Total returns in retail saw a slight increase from 1.4 per cent in Q3 to 1.5 per cent in Q4, while the UK-wide figure saw a marginal slip. The annual total return for retail in 2017 was 5.8 per cent, a marked improvement on the one per cent return achieved in 2016. Over the course of the past twelve months, capital growth for Scottish retail has been virtually flat, despite average rental growth on 0.5 per cent over the year.

Once again, industrials were the best performing of the three main sector groups in 2017, producing a total return of 7.9 per cent during the year compared to 4.3 per cent achieved in 2016. Industrials were the only sector to experience substantive capital growth in 2017, with values increasing by 5.5 per cent on average, and rental value up by one per cent over the same period. Like other sectors, growth rates improved during the course of the year. Capital values were up two per cent alone in Q4, leading a quarterly total return of 2.5 per cent.

The industrial markets in Glasgow (14.2 per cent) and Edinburgh (11.6 per cent) were the only two city groupings to achieve double-digit returns in 2017. The market in Aberdeen continues to lag significantly behind the central belt cities, but at 2.8 per cent the industrial sector is now producing positive returns. Aberdeen’s other two sectors remain weak, with the retail sector just slipping into negative returns once again.

Steven Newlands, an executive director at CBRE, said: “These results are encouraging for the investment market in Scotland, where sentiment improved following the general election result last year, which reduced, in investors’ eyes, the likelihood of a second independence referendum.

“It should be noted that Scottish property continues to offer good value to investors and is trading at a discount comparable to properties south of the border.”

Source: The National

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Commercial Property Investors become increasingly Selective in 2018

After a strong year for UK commercial property in 2017, it looks like things may start to change in 2018. Although not as dramatic as the stock market pullback in January, the February auctions were certainly not plain sailing.

Whilst quality investments continued to sell like hotcakes, the less exciting lots left much to be desired. The success rates of the leading national auctioneers were below 2017 norms (when 100% sales rate were not uncommon): Allsop (80%), Acuitus (ca. 75%) and Barnett Ross (ca. 85%).

Jesal Patel, Director at The Prideview Group, comments “There is still a hell of a lot of cash sitting on the sidelines, ripe for investment. But in the context of rising inflation and interest rates, that cash wants either solid long-dated income or genuine value-add opportunities i.e. investments that permit the investor to ride through the uncertainty ahead.

The below blue-chip investments which The Prideview Group either bought or sold in February’s auctions are representative of the pricing for quality investments in the current market. If you are looking to invest in auction or privately in 2018, they have a number of opportunities available now. These include;

Lot 67 – McDonald’s, Leicester

Lot 67 – McDonald’s, LeicesterDescription: Freehold city centre restaurant investment

Tenancy: Let to McDonald’s Restaurants Ltd until 2036 (no breaks) for £109,000 FR&I

Location: Good location in pedestrianised town centre

Guide Price: £2m+ (5.5%)

Result: Sold Prior (ca. 4%)

Prideview Group’s comment: “A ‘trophy’ asset like this, let to the likes of McDonald’s for almost 20 years, is like a diamond in the rough. So it was our pleasure to be acting for the sellers on its disposal via auction, after having helped them negotiate a lease extension with McDonald’s. Interest was strong pre-auction but it needed to be a knock-out bid to prevent it from going to the room, and that bid did eventually come from a local entrepreneur.”

Lot 35 – Tesco Express & 2 Restaurants, Ickenham, Greater London

Lot 35 – Tesco Express & 2 Restaurants, Ickenham, Greater London

Description:Freehold convenience store, restaurant & residential ground rent investment

Tenancy:Convenience store let to Tesco until 2023, Restaurants for a further 10 years, total rent £89,365 p.a. FR&I

Location: On a busy commercial parade in an affluent north-west London suburb

Reserve Below: £1,250,000+ (7.1%)

Result: £1,405,000 (6.4%)

Prideview Group’s comment: “This investment caught our eye due to its attractively priced guide as well as its location in a part of London in which we are extremely active. With 2 more units let to independent tenants, it’s a nicely diversified lot. We successfully acquired it on behalf of a client who would not have bought at auction otherwise, within our pre-agreed limit.”

Lot 101 – Papa John’s, Newport

Lot 101 – Papa John’s, Newport

Description:Freehold takeaway & residential ground rent investment

Tenancy: Takeaway let to Papa John’s for 15 years from 10/02/2017 (TBO 10th year) for £12,000 p.a. and Flats sold off on long leases for £100 p.a. FR&I

Location: Arterial road in a residential suburb 1 mile from the city centre

Guide Price: £155k + (7.8%)

Result: £168k (7.2%)

Prideview Group’s comment: “It’s very hard to find a blue-chip investment with 9 years’ income under £200k, and when we booked this for sale in auction we expected it to fly. However buyers looking at this price point are typically novice, and could have been put off by either VAT (typically VAT properties do not appeal to those buying in their own names) or the legals (there were some outstanding certifications required for the newly built flats above). Whilst in the context of the wider market this looks (and is) a great buy, it’s always important to analyse each property on its merits.”

Source: Property Forum