Less than one in 20 UK commercial property experts believe a fast-paced recovery in asset values will continue in 2010, while tenant demand and rental growth remain under pressure, a survey out on Monday showed.
Benchmark data in the latest Expert Panel survey, by online real estate portal Reita, shows average commercial property values have gained about 9 percent since July, although this has been driven by prime quality, well-located buildings.
Some investors fear values of secondary property in less popular areas may take up to 18 months to catch up with soaring prices in locations such as Mayfair and the City financial district, both in London, the survey showed.
Experts also worry measures taken by government to curb Britain's rising national debt could exacerbate this 'two-tone' rebound by compressing tenant demand and rental growth.
"The only economic certainty is that public spending will be severely cut by the next government and that people will have a lot less money to spend as a result," Peter Cosmetatos, director of Reita, said.
"This will undoubtedly have an impact on business and on the take-up of commercial space. With that in mind we should tread very carefully when making any predictions over long term market recovery this year," he said.
Wednesday, 27 January 2010
Tuesday, 26 January 2010
Commercial Property "Trumps" Residential Property
At this time of year, residential real estate investors, struck by the most dismal returns of 2009, are looking for alternative ways to generate wealth
What if we could diversify and still hold on to good ol` bricks and mortar?
We can through commercial property and the returns could be very lucrative indeed. The "Trumps" of the world have been doing it for years. Yet this is an area where many fear to tread. To determine if this fear is justified, let`s uncover the myths.
Myth 1: Commercial property is more risky
False. Commercial tenants view their rentals as operating and tax deductible expenses of the business. They are willing (perhaps not ecstatic though!) to pay as long as they are deriving an income from the premises. Certainly there is a chance their business will fail but there is more of an incentive to pay when compared to residential tenants who often resent their exploitative, greedy landlord. Furthermore, there is less government protection for non paying commercial tenants than for residential tenants.
Myth 2: It is more difficult to secure a commercial tenant
True. If a house has not been rented, it is because the rent is too high. Drop the price (sometimes drastically) and you will probably find a tenant. On the other hand, when a commercial property is empty it may not be because of the rental level but because the property is only suited to certain activities, one may not be able to mould any operation into the premises.
Myth 3: You need greater capital to invest in commercial real estate.
True and False. Banks are willing to lend a large proportion of a residential purchase price. At boom times 110%. Banks are far more conservative with commercial real estate and generally do not lend more than 50-70% of the value of the property.
However banks are not concerned with PRICE, but rather VALUE (determined in commercial property largely by the rental income). One can purchase a vacant property (rental of 0) and source a tenant, increasing the rent and hence the value, leading to a loan which may exceed 100% of the price.
Myth 4: Commercial property requires more management
False. Commercial leases may run for up to 20 years or longer. Tenants will be establishing a business from the premises and require continuity. They have custom designed the premises to suit their needs and their clients and staff become familiar with the premises, hence their desire to stay.
Residential tenants on the other hand often look for the shortest possible leases and even when they do sign a long term lease, will often use a longer story to get out of it!
Myth 5: Commercial property requires more maintenance
False. Commercial tenants earn their income from the premises. They are much more likely to do small maintenance jobs themselves than wait for the landlord as they need things fixed immediately. In addition, they will always be looking for ways to make the property more desirable in order to please clients and generate a greater income.
Residential tenants often call the landlord with the most trivial problems. They will seldom, if ever, invest their own money in making the property more desirable because they view it as someone else`s investment.
Realestateweb
What if we could diversify and still hold on to good ol` bricks and mortar?
We can through commercial property and the returns could be very lucrative indeed. The "Trumps" of the world have been doing it for years. Yet this is an area where many fear to tread. To determine if this fear is justified, let`s uncover the myths.
Myth 1: Commercial property is more risky
False. Commercial tenants view their rentals as operating and tax deductible expenses of the business. They are willing (perhaps not ecstatic though!) to pay as long as they are deriving an income from the premises. Certainly there is a chance their business will fail but there is more of an incentive to pay when compared to residential tenants who often resent their exploitative, greedy landlord. Furthermore, there is less government protection for non paying commercial tenants than for residential tenants.
Myth 2: It is more difficult to secure a commercial tenant
True. If a house has not been rented, it is because the rent is too high. Drop the price (sometimes drastically) and you will probably find a tenant. On the other hand, when a commercial property is empty it may not be because of the rental level but because the property is only suited to certain activities, one may not be able to mould any operation into the premises.
Myth 3: You need greater capital to invest in commercial real estate.
True and False. Banks are willing to lend a large proportion of a residential purchase price. At boom times 110%. Banks are far more conservative with commercial real estate and generally do not lend more than 50-70% of the value of the property.
However banks are not concerned with PRICE, but rather VALUE (determined in commercial property largely by the rental income). One can purchase a vacant property (rental of 0) and source a tenant, increasing the rent and hence the value, leading to a loan which may exceed 100% of the price.
Myth 4: Commercial property requires more management
False. Commercial leases may run for up to 20 years or longer. Tenants will be establishing a business from the premises and require continuity. They have custom designed the premises to suit their needs and their clients and staff become familiar with the premises, hence their desire to stay.
Residential tenants on the other hand often look for the shortest possible leases and even when they do sign a long term lease, will often use a longer story to get out of it!
Myth 5: Commercial property requires more maintenance
False. Commercial tenants earn their income from the premises. They are much more likely to do small maintenance jobs themselves than wait for the landlord as they need things fixed immediately. In addition, they will always be looking for ways to make the property more desirable in order to please clients and generate a greater income.
Residential tenants often call the landlord with the most trivial problems. They will seldom, if ever, invest their own money in making the property more desirable because they view it as someone else`s investment.
Realestateweb
Monday, 25 January 2010
RICS UK Commercial Property Survey
The amount of office space available to tenants in London declined for the first time in two years as the London economy started to lead the country out of recession according to the RICS' UK Commercial Property Survey.
Demand for business property increased in the fourth quarter of 2009 with office space and industrial property proving particularly popular but demand for retail space continued to decline. Fourteen per cent more chartered surveyors reported a rise in tenant demand up from 8% in the previous quarter. This is the second successive rise in tenant demand and the first time that there has been an upward trend since early 2007.
Eight per cent more chartered surveyors reported a fall in available floorspace in London down from a positive balance of 37%. This is the first time the net balance for office availability has turned negative for two years with central London witnessing the strongest upturn in activity. As a consequence, the lack of available space has had an impact on office rents in the capital which stabilised for the first time in two years.
These positive improvements have increased the expectations of chartered surveyors for future lettings with optimism rising across the office and industrial sectors. The biggest rise in confidence has been in the office market followed by the industrial sector although expectations towards retail lettings remains flat. Investment transactions rose across all sectors with 35% of chartered surveyors reporting a rise, up from 7% in the third quarter.
Commenting, Oliver Gilmartin, RICS senior economist said: "Surveyors have turned mildly optimistic on the outlook for rents in London for the first time in over two years outside the retail sector as the capital continues to drive the recovery. Whilst retail property has seen the strongest rebound since August it is lagging the occupier market turnaround. However, the news that lease lengths are no longer declining in the capital and incentives are being scaled back for offices and industrials will come as some comfort for investors whom have driven a sharp rebound in pricing since the Autumn.
"To be sustained, the rapid rise in capital values in the London market needs to be supported by further rental increases particularly as prime yields are rapidly approaching financing costs. The reluctance of banks to lend to developers has clearly added some support to rents in London as available space is no longer rising outside the retail sector. Significantly, development starts continue to fall back."
Demand for business property increased in the fourth quarter of 2009 with office space and industrial property proving particularly popular but demand for retail space continued to decline. Fourteen per cent more chartered surveyors reported a rise in tenant demand up from 8% in the previous quarter. This is the second successive rise in tenant demand and the first time that there has been an upward trend since early 2007.
Eight per cent more chartered surveyors reported a fall in available floorspace in London down from a positive balance of 37%. This is the first time the net balance for office availability has turned negative for two years with central London witnessing the strongest upturn in activity. As a consequence, the lack of available space has had an impact on office rents in the capital which stabilised for the first time in two years.
These positive improvements have increased the expectations of chartered surveyors for future lettings with optimism rising across the office and industrial sectors. The biggest rise in confidence has been in the office market followed by the industrial sector although expectations towards retail lettings remains flat. Investment transactions rose across all sectors with 35% of chartered surveyors reporting a rise, up from 7% in the third quarter.
Commenting, Oliver Gilmartin, RICS senior economist said: "Surveyors have turned mildly optimistic on the outlook for rents in London for the first time in over two years outside the retail sector as the capital continues to drive the recovery. Whilst retail property has seen the strongest rebound since August it is lagging the occupier market turnaround. However, the news that lease lengths are no longer declining in the capital and incentives are being scaled back for offices and industrials will come as some comfort for investors whom have driven a sharp rebound in pricing since the Autumn.
"To be sustained, the rapid rise in capital values in the London market needs to be supported by further rental increases particularly as prime yields are rapidly approaching financing costs. The reluctance of banks to lend to developers has clearly added some support to rents in London as available space is no longer rising outside the retail sector. Significantly, development starts continue to fall back."
Sunday, 24 January 2010
West End Purple Flag Award
London's Leicester Square and Covent Garden have been named safe and attractive places to visit in a national scheme.The areas in London's West End have been awarded Purple Flags by the Association of Town Centre Management.
The scheme assesses each area's crime rates, hygiene standards and range of visitor attractions.Westminster City councillor Daniel Astaire described the award as an "incredible achievement".
The Purple Flag scheme aims to recognise high city standards in the same way that Blue Flags indicate good beaches and Green Flags recognise good parks.
The Home Office-backed scheme also hopes to encourage more city centre visitors between 1700 and 0600 GMT.
Extra police and floodlights were installed in the West End in December last year, along with a giant screen displaying travel information.
Last month the number of serious violent offences in the West End fell to seven, compared to 11 in December 2008.
The scheme assesses each area's crime rates, hygiene standards and range of visitor attractions.Westminster City councillor Daniel Astaire described the award as an "incredible achievement".
The Purple Flag scheme aims to recognise high city standards in the same way that Blue Flags indicate good beaches and Green Flags recognise good parks.
The Home Office-backed scheme also hopes to encourage more city centre visitors between 1700 and 0600 GMT.
Extra police and floodlights were installed in the West End in December last year, along with a giant screen displaying travel information.
Last month the number of serious violent offences in the West End fell to seven, compared to 11 in December 2008.
Friday, 22 January 2010
Great Portland Revives Developments on Rental Growth Prospects
Great Portland Estates Plc, the property developer focused on London’s West End district, revived its building plans on prospects of a recovery in rents.
The company will start an office project on Regent Street, refurbish a building on Oxford Street and convert a nearby office into an apartment block, Great Portland said today in a statement. It also reported a gain in property values and a lower vacancy rate.
Great Portland halted most of its projects in 2008 as the global financial crisis triggered a two-year slump in property values and rents. The company today predicted a recovery in rents in the second half because of a shortage of new space in the West End, the world’s most expensive office location. About 80 percent of Great Portland’s properties are located in the district, which has the city’s highest concentration of shops, theaters and restaurants.
“Supply is tight,” Chief Executive Officer Toby Courtauld said in a telephone interview. Marcol House on Regent Street “should be the first West End development to complete in 2012 and is going to be a real rarity.”
Bloomburg
The company will start an office project on Regent Street, refurbish a building on Oxford Street and convert a nearby office into an apartment block, Great Portland said today in a statement. It also reported a gain in property values and a lower vacancy rate.
Great Portland halted most of its projects in 2008 as the global financial crisis triggered a two-year slump in property values and rents. The company today predicted a recovery in rents in the second half because of a shortage of new space in the West End, the world’s most expensive office location. About 80 percent of Great Portland’s properties are located in the district, which has the city’s highest concentration of shops, theaters and restaurants.
“Supply is tight,” Chief Executive Officer Toby Courtauld said in a telephone interview. Marcol House on Regent Street “should be the first West End development to complete in 2012 and is going to be a real rarity.”
Bloomburg
London Commercial Property Top Investment
London surged as the top destination for commercial real estate investment, beating out Washington D.C. and leaving New York in the dust, according to a recent survey by the Association of Foreign Investors in Real Estate (AFIRE).
London's score was 31 points higher than second-place Washington and 40 points ahead of third-place New York. Last year, London was in second place, four points behind Washington and only two ahead of New York.
Investors believe that commercial real estate prices in London already have bottomed out. However, prices in the U.S. have not because of differences in accounting practices.
"London currently offers investors the advantage of a "re-priced" market," James Fetgatter, AFIRE chief executive, said. "The re-pricing began sooner than it did in other cities."
The survey of the association's nearly 200 members was conducted in the fourth quarter 2009. Survey respondents own more than $842 billion of real estate globally including $304 billion in the U.S.
The United States remained the country selected as the "most stable and secure real estate investment environment," although only 44 percent of the respondents said so. It was the first time the United State fell below 50 percent in the survey. That's down from 53 percent in 2008 and 57 percent in 2007.Germany was second with 21 percent.
London's score was 31 points higher than second-place Washington and 40 points ahead of third-place New York. Last year, London was in second place, four points behind Washington and only two ahead of New York.
Investors believe that commercial real estate prices in London already have bottomed out. However, prices in the U.S. have not because of differences in accounting practices.
"London currently offers investors the advantage of a "re-priced" market," James Fetgatter, AFIRE chief executive, said. "The re-pricing began sooner than it did in other cities."
The survey of the association's nearly 200 members was conducted in the fourth quarter 2009. Survey respondents own more than $842 billion of real estate globally including $304 billion in the U.S.
The United States remained the country selected as the "most stable and secure real estate investment environment," although only 44 percent of the respondents said so. It was the first time the United State fell below 50 percent in the survey. That's down from 53 percent in 2008 and 57 percent in 2007.Germany was second with 21 percent.
Tuesday, 19 January 2010
London Financial Centre Set For 100,000 New Jobs Boost
Tosca, one of the City's best-known hedge funds, expects London to thrive as a financial centre over the next decade. In contrast to doom-laden forecasts about the City's imminent demise, Tosca chief economist Savvas Savouri believes it will become the natural Western hub for emerging market growth. According to Savouri, the capital will attract at least 100,000 new financial services jobs over the next ten years. With demand for London property already outstripping the supply on the market this news can only lead to property price rises over the decade.
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