Commercial Property Blog
All posts by Andrew Teacher
Liverpool - a safe haven for commercial property investment?
It’s true that the commercial property sector hasn’t had an easy path since the global financial crisis of 2008. Prices fell by a staggering amount and remain lower than pre credit crunch highs.
That said though, thanks to its low correlation with the fluctuating and erratic nature of the stock market, commercial property can still be a lucrative form of investment and opportunities available in Liverpool highlight perfectly why this is so.
The many opportunities currently available in Liverpool are positioning the city alongside the few big international players. Exciting pipeline developments for Liverpool also demonstrate that confidence in the future success of the city is running high and that investors are willing to back plans to keep the city thriving.
Since its successful run as Capital of Culture in 2008, Liverpool has been hotting-up as a commercial property investment destination.
The ongoing development of the historic docks, the hugely successful Liverpool ONE complex and the development of the Echo Arena and the BT Convention Centre, which attract big name performers and conferences, are just a few examples of the major developments that have helped ear mark the city an appealing destination for investment funds.
Can Liverpool keep this momentum up though? I can confidently say yes, I think they can!
The once glory days of the vibrant docks could be set for a return thanks to major plans that will enable Liverpool to play a significant role as a key distribution hub for the North West region and the wider UK.
Couple this with the fact that Liverpool and surrounding areas are at the forefront of the UK’s offshore wind industry (some of the worlds largest wind farms are located just off the coast) and it isn’t hard to see why more and more businesses and investors are choosing Liverpool.
As commercial regeneration steps up a gear significant business and investment opportunities will be rife.
The proposed Liverpool Waters £5.5bn regeneration scheme intends to transform a 60hectare docklands area into a world-class mixed use waterfront boasting retail, hotels, residential and commercial office space, all of which will undoubtedly, when teamed with other projects, bring more investment and jobs to the city.
The opportunities don’t stop there. Highly acclaimed designs, recently given the green light, will see the Pall Mall commercial district of the city transformed. Such developments will provide the catalyst for future developments that are hailed as vital in the city’s drive to compete as a world-class business centre.
Recent figures state that since the end of Q3 2009, UK-based investing institutions have increased the size of their commercial property portfolios by £8.2bn. Data which highlights perfectly the renewed belief in the market.
UK institutions responsible for the management of pension plans are still the biggest owners of commercial investment property and the key to sound investment is via a diversified portfolio with different properties across different sectors and different geographical locations, which Liverpool is certainly able to offer.
Matt Kerrigan, partner, Hitchcock Wright & Partners
Putting the case forward for maintenance and repair
The recent approval of the Growth and Infrastructure Bill together with promises from the Government to fund new housing development no doubt has its advantages.
Indeed, the Government promises that momentum in the housing sector will build, and in particular I note the potential for stalled homes, of which there are an estimated 75,000, to be completed as a positive development for the housing and construction sector, as well as the wider economy. That said, a concern that I’m sure must be felt among many, is that there is a more immediate need for ongoing repair and maintenance, particularly with housing, that will surely facilitate more immediate growth and build the foundations for future development.
The latest Office for National Statistics (ONS) data revealed that repair and maintenance output in housing fell year-on-year by 8.6% December 2012 to February 2013. But contrary to what the statistics suggest, particularly within housing associations, repair and maintenance is an ongoing priority and a recurring costly outlay. The National Housing Federation revealed that £3.5billion was spent on repairs and maintenance in 2011, highlighting that there is a very apparent need for work in this area to be prioritised.
Despite much of the funding for housing associations coming privately to enable improvements to be carried out, many local authorities have transferred their homes to housing associations in order to fund improvements so they can meet the Decent Homes Standard. This, as a case in point, again reiterates the fact that repair and maintenance needs to be addressed before the Government pumps money into funding new houses.
In order for the housing sector to move forward, I believe that a holistic review of the materials used in social housing in particular should be implemented. When costs have been - and continue to be - the key driver for specification, there is a tendency to be short-sighted and not look beyond the specification stage of a build. By satisfying the short-term goal - that is to build quickly and cheaply – social housing is at even greater risk of needing repair and maintenance in the long-term, which means even greater expense. If the Government funds new housing, surely we are taking a step forward to take two steps back? - We are only adding to the sheer number of houses in need of repair and maintenance.
If this was made more of a priority, I believe we would start to see positive progress that would build the foundations for future growth. In short, if we fix the existing problem, there is no doubt that more households will be homed as a result and momentum in the sector will begin automatically. Money will also be saved in the long-term, which is what is needed in order to help the economy recover and for it to show consistent growth.
Gary Carter is UK general manager at Fermacell
To Brazil and back: a look at retailers and investors
Why Brazil?
In January many of us decide that we need to join a gym. I decided that I would instead dedicate some time to exercising my mind ,instead of my hamstrings, and so signed up for the first event being organised by the new Brazil outpost of The School of Life.
The road congestion is so bad that the five hours I’d allowed from arriving for my first trip in Brazil to get to the course was not enough. And I had laughed when friends advised that I would struggle to make the start of the course unless I booked a helicopter.
Brazil has the highest density of private helicopter ownership in the World, because tailbacks of over 200 miles are regular occurrences in Rio and So Paulo.
In fact the demand is so strong from the 10 new millionaires being created every day in Brazil that successful people show their wealth by having incredibly expensive Hermes, Gucci or Prada makeovers of the passenger areas of their helicopters.
My objective is to return to London after a week on this course with a robust plan -incorporating the suggestions and ideas formed in So Paulo.
We are to cover a wide range of topics over the week. After the first day I am already buzzing with ideas that I want to share with my Marylebone team on my return to my desk.
Day three
In my first 3 days exploring São Paulo the only global chains that I have seen so far are McDonalds and American Apparel.
There are a number of strong Brazilian retailers such as Daslu. Lucia Piva de Albuquerque and Lourdes Aranha opened their first space in the Vila Conceicao district in 1958, by converting a single 125,000 sq ft building into 23 sections.
The space had no windows or signage, with everything being designed to be discreet.
The Daslu business continues to set new trends. In my view they have developed an approach of their customers feeling they are friends of Daslu, rather than being just customers. They now have 70 boutiques across Brazil.
The space at their flagship is redesigned every 2 or 3 months to reflect the new collections, which now stocks the leading aspirational fashion labels as well as the Daslu brand. In addition, they have secured stockists for the Daslu merchandise in over 70 corners across Asia, Europe, the Middle East, Africa and the Caribbean.
Nearly 2 million sq metres of new shopping centre space has been built in the last 2 years in around 40 centres and developers are planning refurbishments or extensions to most of the existing leading centres, to respond to the incredible new wealth being created in the 5 or 6 major conurbations.
Before I came to Sao Paulo I was interested to read that levels of Internet purchasing are low in Brazil, but I now realise that Brazilians like shopping in “real life”. Advances in infrastructure and technology have meant around a third of the population could now shop online, but the levels of Internet buying has not increased in line with access.
In the last 10 years there has been escape for many people into the middle class, or Class C as it is known in Brazil, with 30 million people elevated in the last 5 years. Research I have read suggests that another 30 million will join Class C in the next 5 years.
Rio and Sao Paulo are dominant, having 50% of the total “institutional” retail floorspace of the whole country.There are 150 cities in Brazil that have a population greater than 150,000.
I believe there is huge opportunity for developers and investors.
The always pioneering Westfield realised that malls in Brazil also provided security for shoppers, in a country where vacancy has been running at less than 3% and in an economic climate where sterling has halved in value against the Brazilian real in the last 5 or 6 years.
They invested 440 million Australian dollars to acquire a 50% stake in São Paulo based Almeida, bringing 5 malls into their existing 125 mall portfolio.
This was the first major investment by Westfield in a new marketplace since it entered the UK in 2000.
Sao Paulo
I had read about the emerging district to the West of São Paulo and so was delighted to have the chance to explore the neighbourhood with some locals.
It is only 10 minutes from the Centro, but is full of great indie shops and over 100 cafes,in mainly single storey buildings, with wide pavements and no sniff of danger. The area reminds me of Silver Lake of nearer home Dartmouth Park. A small town in a huge city, with a bohemian atmosphere.
I saw beautifully curated shops such as Estudio Manus, who sell special objects they have selected from around the world.
I fear that Vila Madalena may have lost the individual character next time that I visit- we have all seen how places such as Borough Market, Notting Hill post Richard Curtis and SoHo in New York have changed.
So to the future of Sao Paulo and the rest of Brazil. The incredibly bright Chad Pike has committed $500 m into a fund to develop up to 20 centres alongside Tenco and other Brazilian companies, particularly in the fast emerging market in Northern Brazil, where the boom in agriculture and other commodities is fuelling consumer spending. The Tactical Opportunities fund is concentrating on cities with 250,000 to 500,000 people.
Brazil last year was once again recognised as the emerging market in the Association of Foreign Investors survey. I believe Brazil represents an amazing opportunity for brands such as Superdry and Debenhams to access growth that is not available to them in the UK.
It is also exciting for developers and investors. Simon Property Group entered Brazil in 2012 through a JV with Malls Participacoes to develop outlet centres and their first is in SP. The old and new money in Brazil both like global brands and a large part of the population are natural shoppers - Japanese and Italians.
In our terms, there appears to be a complete absence of any formal planning. There are expensive apartment blocks with 24 hour security guards (sitting in their huts behind razor wire) next to buildings covered in graffiti by the pixacaos. I was surprised by the lack of billboards in the centre, but these were banned 5 years ago and seem to have been replaced by the graffiti.
The beautiful parks provide an escape, because São Paulo downtown has been in decline.
São Paulo was at least 20 years ahead of London in creating extraordinary public areas on a vast scale from redundant industrial buildings. MASP (the Museu de Arte de São Paulo) was completed in 1968. The whole building is on bright red arches suspended 3 storeys above grade, creating a community space for markets, concerts, picnics and protests.
Oscar Niemeyer hoped that Copan and his other functional buildings would allow people to express their own creativity by using the spaces creatively. In the same block he designed huge private apartments alongside studio flats for less fortunate citizens.
The shopping malls are changing rapidly and I was interested to see that developers are innovating.
Exciting new developments include the 5 storey Cidame Jardim, built by JHSF and filled with natural light and a swish roof terrace. Armani and Hermes sit comfortable alongside Carlos Miele and the best chocolate in SP at Chocolates du Jour. Arrival on foot is not easy, with most people arriving by car, taxi or helicopter.
In contrast, there are over 90 million visitors every year to Conjunto Nacional ( a David Libeskind project built in 1958 ) which has residential above mixed commercial and Cine Bombril- one of the best cinemas in São Paulo. The digital clock and thermometer are a daily reference for Paulistanos.
A former 1980s department store has been converted into Eldorado providing a range of shops, cafes and restaurants - with the only all year skating rink in the basement.
There are several markets including the Ceasa and Feira da Republica, but they are incredibly busy. At Rua Ribeiro de Lima, a collection of over 50 streets now form a huge wholesale district in a former industrial area. There is a hotel there for those that travel in from all over the state of SP and VIP customers can stay free of charge. It is important to remember that the State of SP is larger than the whole of Great Britain.
What can our property sector learn from Sao Paulo? Shopping centres that are refreshed can survive the onslaught of new developments, indies can trade happily alongside global brands, genuine mixed use can work, culture and artistic ideas should be at the heart of our cities (not stuck on the top floor, or away from pedestrian access ) if we create safe and exciting developments with a sense of place people will still enjoy physical shopping. We may need to install helipads on the leading centres!
I have thoroughly enjoyed my first visit to Brazil. I am certain that I will be back.
How to Help Cyprus' Starving Footballers
When footballers get poor, you know things are bad. Premier League players say anything less than £55,000 a week is “disrespectful”! They should spare a thought for their colleagues in Cyprus.
Many Cypriot footballers haven’t been paid for five months; some are even receiving Food Aid. Clubs are merging to make minimum ends meet. Imagine Ranger’s insolvent fate overtaking every UK club; or suddenly seeing Robin van Persie selling the Big Issue. That’s what Cyprus is like for footballers.
Poverty is spreading through the island like a blight. The electricity regulator has cut prices by 5 % so people won’t be without power and, in Paphos alone, 10-15 new applications for food aid are made every day. The serpent has entered this former paradis fiscale (the evocative French phrase for tax haven).
Mrs Thatcher’s omnipresent death debate has also come to Cyprus. Just as in the UK, her memory divides rather than unites. Some Cypriot commentators have begun to call (in the name of “Thatcherism”) for still deeper public spending cuts and privatisation of state entities. Others, pointing to deep poverty and lack of demand and domestic industries, are asking for substantial investment from EU structural support funds.
Just as in the UK, the shrill tone of the debate and its suspiciously simple terms - “Cut or Spend”, “Black or White”, “Bouffant Boudicca or Wicked Witch” - probably indicate that the political elite don’t know what to do about the deficit and recession. They are ignorant armies fighting in the dark. They urgently need to find a path through that darkness. Eurozone politicians have a moral obligation to the Eurozone’s suffering people. They owe them political courage and a plan with larger horizons than anything tried so far.
Massive problems, like the Eurocrisis, require massive response. Sadly, Eurozone’s governments are only doing what they think their electorates will let them get away with. Europe needs a “Grand Bargain”. Each country’s individual government bonds should be replaced by Eurobonds. Then, if investors want to buy into Germany, Finland or France via government bonds, they would also HAVE to buy into Greece, Italy and (yes) even Cyprus. The crisis would end for the Eurozone periphery, but at a cost for the core. Eurobonds would need to be coupled with banking union and making the ECB lender of last resort. The leap into Eurobonds requires political courage and economic sacrifice. But the alternative is to go on for years applying bail out (and bail in) bandages to each new fissure in the Eurozones’ crumbling crust.
There is another (slightly wacky) move that is being canvassed - to call in all €500 notes. It is believed that there are €290 billion of these in circulation. I say believed, because very few honest people have ever seen one. It is estimated that perhaps up to 90% of them are in criminal (or at least shadowy) hands.
So, call them in, set a date after which they will become worthless and require those handing them in to explain where they got them. Europe’s modern day Ronnie and Reggie Krays will feel very uncomfortable. A few ten of billions will stay hidden in black holdalls and any €500 notes that are not returned, will be a benefit to the ECB.
Turning to the Japanese is also an option. The Bank of Japan has just launched the biggest quantitative easing programme in history. Its purpose? To jolt the Japanese economy out of 20 years of “Zombism.” “Abenomics”, named after its prime ministerial champion, should provoke lower interest rates and higher inflation in Japan. Faced with this spend it or lose it situation, Japanese investors are turning to higher yielding “risk assets” in the Eurozone periphery. Cyprus, for all its troubles, still a favourable corporate investment base, may be able to attract some of them.
“Cyxit” is not an option. If Cyprus left the Eurozone, it would suffer mass devaluation, unemployment and blocked access to bail out funds. Like cold turkey, the bail out hurts, but it works.
Cyprus’ predicament shows the profound urgency for a Europe wide solution, not an ailing country by ailing country one. You can’t cure a consumptive continent with a sticking plaster.
Bruce Dear, Head of London Real Estate, Eversheds LLP.
German tourists in Cyprus would be well advised to pretend to be Russian
When you land at Paphos airport, the first thing you see is a golden advert for Russian Commercial Bank. The second thing you see is a silver advert for Russian Standard Vodka.
When I was young, “The Russian’s are coming!” was still scary. But what actually happens when they do come? They set up banks, drink vodka and sun bathe in designer bikinis. If only we’d known!
The porter says some Russian men are too macho and vodka soaked. Being from England - land of blancmange bellies, binge drinking and tramp stamps - I can’t judge them. I also sympathise with them. Russian history would drive you to it. Russian history is not something a man survives on a sensitive demeanour and a glass of water.
Take, for example, a scene in Vasily Grossman’s great Second World War novel, Life and Fate.
The Russian high command are clustered on the Volga bank. The water is on fire with tank petrol. German shells snow down. The Russians are battle planning; reading maps by the flames’ light. Does anyone say, “I think we should tone down the macho thing and drink less vodka”?
They deserve their vodka and most of them will still be able to afford plenty of it here.
Our media say that bank deposits had to be “hair cut” because so many were held by tax avoiding Russians. Even if that’s so, people here say most Russians got their money out well before the EU barber brandished the hair clippers.
Before the bail-in, at least SIX THOUSAND (current official figure) businesses and individuals emptied their Laiki (ironically pronounced “Lucky”) Bank and Bank of Cyprus accounts.
The consequence of this capital flight? Last November, Cyprus was €17 billion short; now its €23 billion down! And, as usual, it’s the middle class who will suffer the heaviest burden. They are rich enough to tax; but not rich enough to get advance warning and good avoidance advice.
Now there’s a public enquiry about the money’s moonlit flit. How did people know what was coming? The only certainty is that probably many more than 6000 accounts were emptied, and that the Cypriot government leaked like a tuna net.
Cyprus really needs the Russians and all tourists to go on spending. Fifteen thousand families here are in food poverty. Bakeries have slashed bread and milk prices to help them survive. All over the island fund raising concerts and events are being held to help feed them. Behind the dis-embodied Eurozone analysis, there is a genuine humanitarian crisis.
Property prices are tumbling and rents falling. To help under pressure occupiers, the government has frozen commercial rents for two years. KSIA (Cyprus’ BPF) has asked landlords and tenants, during this “tragic moment”, to work together on rent holidays and reductions to keep businesses running.
There is even a rumour that there will a second deposit hair cut, extended to all banks and Co-ops, because the first hair cut hasn’t raised enough money…
The Turkish north (or “breakaway regime” as they still call it here, nearly 40 years on) has gone into advertising hyper drive:”We don’t use the Euro. We use the STABLE Turkish lira.” They aim to raise their tourist numbers by a third by undercutting the South’s hotels. Southern Cyprus is embattled on every front.
But Russians will not patronise Turkish hotels - Turko-Russian relations are very poor. In the south they are linguistically at home - most hotels employ dozens of Russian speakers. They are also religiously comfortable - many churches hold both Greek and Russian Orthodox services. We heard of Russians who have been bringing their families here for forty years. There is a tradition of wealthy Russians coming to Cyprus, as they once did to the Cote d’Azur.
In the winter of 1916/17 the hoteliers of the Cote d’Azur closed the Russian Orthodox Churches, put away the Tsarist elite’s beloved sweet champagne and candied brandy, and looked forward to welcoming them again in 1918. They never came.
But then they had Great War and Revolution to contend with. They say they won’t let a mere Eurozone crisis put them off Cyprus.
After all, as Putin put it, the Euro’s problems are good for Russia’s banks and businesses - people will switch deposits and investments.
By contrast, a delegation of German MPs here has just diplomatically pointed out that Cypriot banks were “casinos for tax avoidance” and needed to be “destroyed”. German tourists in Cyprus would be well advised to pretend to be Russian.
Bruce Dear, Head of London Real Estate, Eversheds LLP.
The Zombie Survival Guide: Top Tips For Retail Leases For 2013
Christmas 2012 was the year multi-channel really hit home. Nearly 1 in 5 used click and collect, while just over 10% of all shopping was carried out on-line. For 2013, successful retailers must offer a strong multi-channel offer. But change takes time. And as HMV, Blockbuster and Jessops have shown, sometimes change may come too late to save a business without radical restructuring.
For landlords, for shopping centre owners and for developers looking for retail tenants, recent events have thrown a renewed focus on how they deal with the retail ‘walking dead’ – retailers that keep selling despite financial figures that show no sign of life. For some, it’s a sign of suppliers, landlords and funders working together to bring them back to life , but not all will be saved, and landlords must consider how to protect themselves from becoming victims of the zombies.
Hope for the best, prepare for the worst: Landlords need to future-proof leases as best they can. When signing a new lease, there are some must-haves and these include: pushing for rent deposits (which are financially ring-fenced to protect income stream); and ensuring that landlords have a quick, clean exit strategy should tenants breach lease obligations – e.g. landlords ability to evict tenants for non-payment of rent.
Protect your incentives: Retailers are still expanding. For landlords, the desire to sign a pre-let or fill vacancies may see them offer tenant incentives like payment of fit-out costs to entice a retailer to take space. But these incentives must be carefully structured so that the landlord is protected if the tenant becomes insolvent before or soon after they take occupation e.g. payments may be timed so that retailers are only paid after a period of occupation.
Pre-pack problems: After the collapse of La Senza and Jane Norman, the administrators and new companies put licence arrangements in place so that the new companies could occupy and trade from stores without any formal link to, or consent from, the landlord. The landlords’ income streams may be maintained, but they have no contractual link with the company in occupation and therefore no right to commence proceedings directly for any breach of the lease e.g. to force them to deal with repairs. A new lease should be a priority to protect the landlord’s property.
Dealing with issues at an early stage can help landlords avoid facing nightmares on the high street.
By Allan Wernham, joint managing partner and partner in the real estate team, and Cassie Ingle, senior associate, Dundas & Wilson.
Cyprus - safe as a Robin Reliant in a demolition derby
Cyprus is the Eurozone canary. What it suffers today, other Europeans may tomorrow.
I’m in Paphos this week, talking to Cypriots about the future. And believe me, it’s definitely not German. Angela Merkel is as popular here as a stink bomb in a diving bell. Cypriots often speak about Merkel in poisonous terms (which is unfair), but two key things are clear
1. Angela Merkel can be meaner about Cypriot moral hazard, than (say) Greece’s, because Cyprus is so small.
If your collapse and exit will cost the Eurozone hundreds of billions or, better still, trillions; then the Eurozone has a problem. If it will only cost the Eurozone a few tens of billions; then YOU have a problem. Losing Cyprus wouldn’t hurt much, so the EU can play hard olive.
2. There is also a German election pending.
The Germans I talk to have bail out fatigue. As they see it, they have helped Greece and others as part of an internationalist and liberal Europe. And their reward as they see it? To be caricatured as Nazis in street protests.
So it will do Merkel no harm to have made one southern European state pay for its meze.
And they are really paying. The bail out settlement means people with over €100,000 of Euro deposits in Cypriot banks will lose 40% of their savings AND have another 22% held back; in case the initial 40% isn’t enough to save the bank!
Think about that. Anyone with over £85k of savings (we’re not talking Roman Abramovitch here) will lose between 40 and 62% of them.
“We Cypriots are peaceful people, we don’t fight. We have our way of life, our beautiful island; but if you push too hard, then we will riot hard,” says my fifty year old taxi driver.
Cyprus proves things your mother taught you aren’t true:
“Bank savings are safe”.
In Cyprus-safe as a Robin Reliant in a demolition derby, EU officials say future bank failures may be dealt with by Cypriot “bail in” model. Put plainly, politicians may swipe your savings.
When I was a child, my grandfather kept cash in the house because, “You never know when a bank might run, Bruce.” My dad would smile benignly. It’s taken 45 years, but Granddad Dear may finally have a point.
“Safe as houses.”
We heard about one English lady who bought a €283,000 house here during the boom. Sadly, her husband died recently. So she sold up (in the now very distressed market) for €162,000. She put the proceeds into a Cypriot bank, to buy a place in England.
But the bail-out came before she could move the money. She is now bereaved and broke. By any standards, that is a screaming injustice.
And the future?
Cyprus will leave the Eurozone before 2020. Trust in it here is completely broken. Even the Head of the Orthodox Church wants to leave.
Cyprus will show that the Core Eurozone’s austerity solution is too painful to be borne socially and economically in the south. Witness Portugal, where the Supreme Court has just declared many austerity measures unconstitutional or Italy, which has just voted for an anti-austerity comedian.
If this trend continues, over the next seven years, the Eurozone will split, by force of economic and social circumstance, into two: a northern “Banking Union” core and a southern “Grexited” rim. Cyprus is first seed in a crop of potential exits.
Cyprus will grow much closer to Russia. As Syria disintegrates, Russia is looking for a new political and economic hub in the Middle East. Russia can use Cyprus as a safe point from which to leverage the Middle East. Russia’s energy companies will help Cyprus get its recently discovered gas deposits ashore. Along with tourism, gas is one of the island’s few remaining economic life lines.
Relations with Turkey will get tenser. Bizarrely, some Cypriots believe that “Turkey made the EU” impose the settlement, so expect more hatred and distrust on top of the bitter legacy of the 1974 war - the north is still a highly militarised Turkish zone.
They see the future as a hard, independent road, but the Cypriot’s are optimistic. “The island was a ruin in ‘74, but we came back from that and we’ll come back from this.” With the EU, Russia and Turkey all adding their angles, it will be difficult; but you sense that they will.
Their island’s been a big nations’ boxing ring for 2000 years; but Cypriots always survive.
Next: What are the Russians saying?
Bruce Dear is head of London real estate, Eversheds LLP.
No "one solution fits all" to fix high street
As communities across the country struggle with the demise of the traditional town centre there have been many suggestions as to how the problems should be addressed. While there is no “one solution fits all” – what is clear is that, in many cases, the property sector and those responsible for the built environment hold the key and should be made to take the lead in terms of the challenges faced by many.
It is not just a question of how to regenerate the high street to save a town’s retail offer or addressing the challenges of internet shopping, but how we build sustainable communities and adapt the fabric of our towns to suit those communities. The property sector must take the lead in this process and priority should be given to bringing under-used commercial property into use as residential accommodation.
But this is not just about converting obsolete office buildings into residential use. Many commentators have been suggesting that it is time to look at the conversion of retail space to residential. Tesco’s former CEO, Sir Terry Leahy, added his own voice to the debate recently, saying: “There will be plenty of life, but I expect the number of shop units will fall and cafes and houses will take their place.”
In many cases the conversion or redevelopment of retail accommodation to residential will require a seismic shift in the attitudes of local authorities, and the communities they serve, who wish to preserve their town centres as hub for retail and commerce. It could be some time before the owners of such town centre buildings, and the local communities, are ready for such conversion.
Is waiting for this change of attitude sensible when it could simply protract the problem? It might be that looking to convert the upper floors of retail properties might be a more realistic and achievable proposition in the short term. The upper floors of many retail units are often used for storage, left empty, sealed off and, in some extreme cases, even removed to leave just a bare shell above a shop ceiling.
By addressing such inefficient use of town centre properties, property owners and retailers could benefit financially by bringing under-utilised space, much of which is used as storage by retailers or simply mothballed, into beneficial use. This in turn would help breathe new life into many town centres and assist in easing the housing crisis.
Conversion also provides an opportunity to address the pressing need to improve the energy efficiency of existing buildings and that is essential if we are to meet medium and long term carbon reduction targets. Refurbishment of and retrofitting existing buildings supports green growth and could help raise awareness of the Green Deal.
Such conversions are not always easy and will, in many cases, require both imagination and investment. The biggest challenge is often spotting the opportunity and being able to adapt or renovate accommodation in a cost effective manner. This in turn needs goodwill from landlords, tenants and the relevant authorities.
Taking a pragmatic approach to the problems of the changing nature of our high streets is vital for a sustainable future for our towns and cities.
Budget housing package cannot prompt flood of new stock
So the perpetual bridesmaid finally made it to the altar. How did boring old housing steal all the headlines in Wednesday’s Budget statement from the perennial favourites: health and education?
Even a penny off a pint of bitter and cancellation of 3% petrol duty took a back seat to nerdy topics such as guaranteed mortgages and Help to Buy.
To understand the economics of the government’s decision, the golden rule is – get the politics. The coalition is approaching its final two years in office, growth remains stalled and deficit reduction isn’t happening any time soon. George Osborne needed to produce a grand gesture to bolster the flagging troops on the Conservative benches after the Eastleigh debacle so he went for the most famous of Thatcherite rallying calls – home ownership, dressed up in his very own catch phrase, “the aspiration nation”. Imagine his chagrin at reading in Thursday’s Evening Standard that owner occupation in London is below 50% for the first time since the 1980’s and that 55% of renters do not believe they will ever own a home. According to Shelter, who conducted the survey, renters’ aspirations are being crushed.
The government believes that Help to Buy, the £3.5bn package to support up to 20% deposits on new-build home purchases, and the staggering £130bn scheme to guarantee a 15% top-slice on mortgages – in both cases up to a maximum value of £600,000 per property – could enable 500,000 extra sales over three years. Savills’ forecast is even higher, at 625,000 sales.
But there is a problem. Help to Buy is about helping the construction industry as much as the purchaser and is only available on newly built properties. Any developer will tell you the supply chain for new stock is approximately two years from the time sites are identified and schemes drawn up. The chief executive of a medium-sized housebuilder told me his company’s stock has almost run down after a buoyant first quarter. Where are these extra new homes not yet in the pipeline going to come from?
The supply side is not the only reason why it is feared that a mini-boom or bubble could be the result of these measures. But it is key to understanding why the chancellor, an arch monetarist, has only grasped half the problem. Investing in people’s homes may get round the public spending rules, but without complementary measures to speed up both planning and the release of land held by the public sector these targets are unlikely to be met.
There is genuine reason to celebrate the extension of the private-rented sector guaranteed fund from the initial £200m announced last year to £1bn. Hopefully, this is an indicator that bidding has been strong for the first tranche of funding, the results of which will shortly be known. The extra £225m for 15,000 more affordable rental homes that are not reliant on completion by March 2015 is also welcome but it is a drop in the ocean when taking into account the 1.8 million households on council waiting lists in England alone.
The housing crisis was never going to be fixed over night, but at least there is recognition that something had to be done and that the multiplier effect of building new homes on the economy is significant. However, the government must beware of perverse incentives. £600,000 may be the price of modest family accommodation in smart London suburbs but it can buy a very substantial property in other regions and effective anti-abuse devices will be needed to prevent hoarding of two or more homes for owner-occupation or casual letting.
Red tape will be inevitable and may slow down transactions, judging by the look of horror from a conveyancing solicitor friend when asked whether he is looking forward to securing second charges on his clients’ new homes to Her Majesty’s Government.
David Levenson is group finance director of Network Housing Group. He writes in a personal capacity.
MIPIM BLOG: Tea leaves suggest brighter things to come
As my TGV rolls out of a distinctly chilly Cannes and along the shores of an iron grey sea (it’s not all lemon blossom and almond cakes down here!), what did this MIPIM’s runes say about the market’s future:
1. Count the Beans! Consolidation and cost control are still order of the day. Many institutional managers I spoke to will merge their smaller funds. They want to cut administrative and man power costs, and achieve a bigger impact through scale. Expect more corporate acquisitions, mergers and restructurings, as our industry gets leaner and, ultimately, fitter.
2. Regional Renaissance? There is just a hint of a market renaissance in the UK’s major regional cities. My partner, Gurjit Atwal, heard from Birmingham CC that they see a big investment pipe-line leveraging off the Birmingham Gateway infrastructure project. This major redevelopment of New Street Station and a grand central shopping area (we are involved) supports the OBR’s belief that infrastructure investment is the best available stimulus to economic activity. My partner Stephen Sorrell is involved in a similar scheme, creating a new business park at Manchester airport. With Co-op’s One Angel Place development and its associated 20 acre Noma regeneration scheme well under way, the UK’s regional cities are fighting back. This can only be good for our market. It’s a move the government should encourage; take note George Osborne!
3. Core, Prime and International. That said, the focus on core and prime is very much still there. SEGRO are continuing their very successful recycling from non-core to core, with a laser focus on economically vibrant areas, such as the Paris-Lyons corridor and the English South East. Note the European focus: the UK will continue to be too small for major property companies with growth ambitions. Witness Hammerson’s recent pre-lets at Les Terrasses du Port.
4. Infrastructure and Residential. There are signs the government believes the balance of economic risk has shifted. Initially, they needed to show the markets they would attack the deficit. Now the bigger risk to the UK is its anaemic (at best) growth level. Vince Cable recently made this clear in a major piece in the New Statesman. Consequently, we will see government investment pumped into infrastructure and housing. This is a huge opportunity for our industry, which is perfectly placed to partner the government here.
5. The Long Deleveraging. Since 2008, investors have been expecting banks to sell off and restructure their loan books and distressed properties. But the banks (mostly) never came. If they had interest cover, then they were happy to nurse the asset through the recession, even if it was sporting spectacular LTV breaches. It became a bit of an embarrassing play - “Waiting for Banko”. It is now clear that you can’t nurse an asset through this recession. By the time it’s over, your asset will be out of the nursery and into long trousers. Waiting’s not an option. So this year, expect Banko to finally come and do lots of deals. This should bring welcome liquidity to the market and perhaps some beneficial price adjustment.
Those are some of the patterns in the tea leaves, but there is something much more important. The sentiment in Cannes has been extremely positive. UK institutions, sovereign wealth funds, agents and property companies are optimistic and keen to do deals. Sentiment is the life force of all markets-without it nothing moves. I predict a strong 2013 for property-so long as you select the right sectors.
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