Price trends for commercial property in 2013

The commercial property sector is showing signs of recovery in the UK, with the market witnessing its sixth consecutive increase in the month of October. According to Investment Property Databank Ltd, the average value of offices, industrial properties and shops increased by 0.6 percent between September and October of 2013. This is good news for owners who saw a total return of real estate value and rental income reach a rate of 1.1 percent.

The increases aren’t just located in the capital city either. Industrial units across the country are currently growing in value at a stable rate; however, the real success stories are being seen in the South East. The returns on commercial property here have actually outpaced the growth of the sector in central London.

Commercial property for sale

Property agents are seeing commercial property reaping the benefits of economic growth. For example, office buildings witnessed a 0.9 percent increase, while warehouse values grew by 0.8 percent. Even the value of retail properties have seen signs of recovery with averages rising by 0.3 percent. Considering the recent trials and tribulations of the high street this is good news.

The increase in value of commercial property foots the overall trend seen in the job market and industrial sectors. Manufacturing and construction sectors grew last month, while British services increased at a quicker rate than any other time in the last 16 years.

The amount of unemployed people in the UK is currently dropping as more businesses find their footing and start to flourish. The number of jobless people actually declined to its lowest numbers since 2009 during 2013’s third quarter. Recent figures showed the unemployed amounted to just 7.6 percent in the UK.

Commercial property for rent        

Investors looking for an opportunity in the commercial sector should consider buying now. Prices are still low enough to find a bargain, but increases in average value show a great deal of promise, which may allow you to reap a decent ROI in the not too distant future.

You will find a variety of commercial estate agents online at RegionProperty.co.uk. This is an online search facility that allows you to browse commercial buildings from across the UK. Here, you can find a wealth of property for commercial purposes, from office buildings to warehouses and high street stores, both for sale and to rent.

RegionProperty.co.uk allows you to filter results using the simple navigation facility to browse by:

• Price
• Location
• Number of rooms
• And much more

If you are a relative novice in the commercial property field, it helps to gain advice from financial lenders and expert estate agents regarding commercial mortgages and property insurance for businesses.

Forecasts for 2014

Reports are positive for the commercial property sector looking to the future, with stronger investment demand for offices around the world forecast for the coming year. A report by Knight Frank – the independent property consultancy – says transactions across the world for commercial property totaled US$224 billion in the first half of this year. Investment activity has improved by 11.7 percent compared with last year. The organisation expects capital values to rise by around 5 percent between now and the end of 2014.

Finding investment property is rather akin to sticking a pin in a map

Last week we thought about buy to let, and whilst that suits certain investors one of the real issues that’s been pondered increasingly is that of institutional money finding it’s way into residential investment.

Commercial property is a safer bet, at least in terms of a solid income, and simpler to manage.  Most tend to be for 15 years with the tenant responsible for all rent and rates as well as insuring and repairing the premises. With luck the investor gets the rent paid, upwards only rent reviews and is handed back premises in re-lettable condition. Capital growth is of less concern than income.

Residential letting is a different ball game. Tenants come and go more often, with attendant void periods.  Management is often of the micro variety and there’s little control of how the place will look when you get it back.  That’s before legal issues around tenants not paying or leaving are taken into account.

Whilst there’s more protection for residential tenants now landlords can still be at the mercy of rogue letting agents who still don’t (yet) have to belong to a redress scheme or be licensed.  Good management is not cheap and as usual you do tend to get what you pay for and this cost eats into the bottom line.  It’s certainly higher than with commercial lets.

The holy grail of course, and never has so much money been crying out for a good home, is the potential capital growth, and seeming rent increases, available to small time landlords.  Of course both capital values and rents can go down, as was seen a couple of years ago in London when both dropped dramatically, but overall the inexorable rise in capital values is enough to drive money into this area.

One fly in the ointment here is that traditional volume landlords have learned long ago that they don’t do this for income, long term capital growth has been spectacular.  In an ideal world rent pays any finance costs and upkeep as of course every few years the property will need updating.  This is fundamental and has held institutions back.  But the gains these landlords have made, just look at the number of property people in the rich lists, have been enviously watched for many years.

My company seeded and started a fund three years ago (great timing eh!) in only prime property, and given that we have over 50 years experience of managing such investments it’s been a success because we know what we’re doing, but has still been hard work.  Money is still slow to come in as for some reason the FSA has said that a property fund with ANY gearing (ours has 20%) is a “risky” one.  However, it has shown that efficient management is the key, and for any institution looking to start a purely residential fund it is the key.

Sourcing property for investment is also a headache and I was heartened to see an entrepreneurial company looking to help potential investors. Rankdesk (www.rankdesk.com) is currently something of a blunt tool but it seeks to rank properties with the kind of criteria used by potential tenants, i.e. closeness to transport, lift, condition etc.. With take up the efficacy will improve and become of real use, and given that finding investment property is still rather akin to sticking a pin in a map it could be the first step to genuinely helping people invest.

As for the players that control the really big money looking for a home in the resi world, they’re circling, but where will they land.

Top 10 tips on finding and moving into a new office

Many occupiers either new to the market or looking at expansion perceive the act of moving into a new office is an easy process as simple as packing up your old office one day and moving into the new one the next. The reality however is very different and there are many common pitfalls that are easy to fall into.

1.  Finding the right office – the trick is to look everywhere. Not all offices are marketed widely and speaking to one agent will not get you an accurate feel of the market. Be prepared to invest a lot of time in this process. If you do not have the time, appoint an acquisition agent to do the leg work. They will typically have good local market knowledge and potentially access to properties and deals that aren’t widely available to the public.

(photo by mediamolecule)

2.  Negotiate lease terms 1 – I would suggest not putting all of your eggs in one basket and negotiating on two or three different properties. Every landlord has their own priorities and if they know there is competition for enquiries this can act as an effective negotiating tactic and can result in numerous tenants’ incentives or rental reductions.

3.  Negotiate lease terms 2 – there is more to a lease than the bottom line rent. Look at service charge budgets and consider agreeing a cap. The rent review clause requires specific attention as does the mechanism for activating any break clauses and the repairing obligations which represent typically one of the larger costs to tenants. Every clause has its importance within the lease and it is essential to scrutinise each and every one.

4.  Negotiate lease terms 3 – only sign a lease for the time you predict you need a property. If you are planning on growing quickly then a shorter lease will allow flexibility or consider a larger size office that will give you that space. If landlords are insistent on longer terms then try and insert a break clause that suits you. Look at the sub-letting and assigning clauses, you may want to get rid of your lease at a later date. Legal and/or professional advice is strongly recommended on these points.

5.  Consider serviced offices – once the domain of new start ups, they are now part of the flexible working culture adopted by many companies. The advantages of paying just a single bill and having reception and meeting room services together with flexible work space can be invaluable. Many providers such as Regus are currently offering very competitive rates that make these genuine options for many SME’s. When considering the cost of a property look at all of the operating costs including Business Rates, service charge and utilities as the actual cost of occupation is very different to just the rent.

Photo Source: CubeKing

6.  Legal representation – this is a corner that cannot be cut. Ensure you have a good solicitor who can keep to timescales. Too many times have tenants been left in an awkward situation as a result of the lease taking many months to complete when they assumed it would be a matter of weeks. Be realistic about how long this will take.

7.  Fitting out your new office 1 – this is a cost which is almost always greater than budgeted for. Office furniture can be acquired second hand relatively inexpensively but, from first hand experience, you get what you pay for. Better quality products will last longer and keep your staff happier. There is nothing worse than an uncomfortable office seat that an employee will be sitting on for 7 or 8 hours a day.

8.  Fitting out your office 2 – consider employing a space planner. There are many companies who will draw accurate space plans and assist with fit out and timings. This is highly advised/essential on more complex fit outs. It is also worth speaking to your landlords, they may be able to provide this service and fund it, saving you a costly capital outlay in order for you to repay it as an additional rent over several years.

9.  Accept paying two rents – unless you broker a good deal on rent free you are likely to end up paying two rents as your new office is being fitted out and your current lease is still on going. Take this into account when looking for new offices. It is not just the time you need to allow for searching, negotiating and signing the lease but also for the fit out and you do not want your business to be homeless for any period of time. Playing it conservative and safe is highly recommended.

10.  Enjoy – open a bottle of champagne, share it amongst your staff and toast the next phase in your businesses development.

Author Biography: Tim Denny is a regular contributor to The Inside Edge.  He is currently a Commercial Property Asset Manager for the London Borough of Tower Hamlets and has an extensive background in commercial property.

LinkedIn – Tim Denny

Twitter – @tim_denny

Is Commercial Property Growing up with the Internet?

In my last article I commented that commercial property portals were a poor relative of their residential property family.  However, I would like to clarify that the reason for this is not necessarily the portals themselves, more the fundamentals of economics – supply and demand.

photo by Tom Curtis

The principle users of these portals are surveyors, many of whom still make great use of traditional networking and are well connected within their respective market places. There is little need for these professionals to view the interactive capabilities of a property on a website when they will frequently be aware of the property having spoken to the agent in the past or attended a property launch there to know of the offering available. In addition the key information on the deals that are on offer will come from communications with the agent marketing the property as the factors that influence such a deal are many and subject to complex negotiations.

Many commercial property deals are done “off market” and no amount of property portal advertising will change this. However, the important point and lesson is with the next generation. There is a growing feeling that the use of the internet in commercial property is improving as that younger generation, who have been exposed to and grown up with the internet, move up to the higher echelons of property companies. As this demand for new technology develops, it is thought that the complexity of that on offer will be also improve and the pricing which is also seen by some as a barrier, will reduce accordingly.

One such example is the laser scanning of buildings in 3D. Such technology allows a fully interactive, virtual, three dimensional property to be explored by the user at will. The detail and level of accuracy is remarkable. However the costs are currently prohibitive and the memory required makes website hosting a near impossible nightmare.

With the possibility of technology that can truly add value to property marketing its adoption by property professionals will improve and this is also true of the use of social media. It is thought that the two go largely hand in hand.

There is nothing wrong with the traditional methods of property transactions but you are either part of the revolution or against it. Those companies and surveyors who do not engage with the new IT platforms could well find themselves left behind by it. The Twitter/LinkedIn/Facebook world is here to stay and intelligent use of these mediums could prove highly lucrative in the future. Commercial property will never be at the cutting edge of technology but it cannot avoid the technological developments and those who embrace the potential will reap the rewards.

Author Biography: Tim Denny is a regular contributor to The Inside Edge.  He is currently a Commercial Property Asset Manager for the London Borough of Tower Hamlets and has an extensive background in commercial property.

LinkedIn – Tim Denny

Twitter – @tim_denny

Commercial Property Portals lag behind Residential online

When it comes to searching for a new home most people are aware of the various offerings of the internet.  The residential property portals such as RightMove, Primelocation, Fish4Homes have, as the recent OFT (Office of Fair Trading) report says ‘changed the face of (residential) property search’

It could not be easier for users to search for residential properties and rich features from 360 degree tours to virtual refurbishment options add to the experience.  Residential property portals are used all through the market from high-value sales to low-value lettings.  However, the commercial market has not been so receptive to online developments. There are portals that are available to those looking for commercial property, however, they are significantly less advanced than their residential counterparts.

EGPropertyLink, NovaLoca and Focus are the market leaders, but compared to the residential property portals only provide the most basic of information such as photos, maps, and property description. The only steps that have really gone beyond these are individual property websites such as Quarter Mile One in Edinburgh.

But the use of the internet by the commercial property market has and continues to lag behind that of the residential market.  The reasons for this include the differing liquidity of the respective markets.  In the case of residential lettings, properties will sometimes be on the market for only a matter of days whilst it is not uncommon for commercial properties to be on the market for many months or even years. It is therefore more suitable to make use of more permanent advertising mediums as they are less likely to date.

Biography: Tim Denny is a regular contributor to The Inside Edge.  He is currently a Commercial Property Asset Manager for the London Borough of Tower Hamlets and has an extrensive background in commercial property.

LinkedIn – Tim Denny

Twitter – @tim_denny