The media has been awash with plenty of coverage relating to deals in the commercial property sector. With the economy showing tentative signs of recovery, it is not surprising that investors seek buildings with strong covenants, long lease terms, fixed RPI linked rent reviews and opportunities to improve their asset through management. I thought I would summarise some of the key trends in the sector, with examples of recent deals.
Office property
City of London offices have continued to perform well. The city continues to see strong demand from Insurance/ TMT tenants. It was recently announced that Henderson Global Investors have submitted plans for a new building at 40 Leadenhall Street appropriately named 'the toaster rack.' If successful, this will join the 'walkie talkie' (20 Fenchurch Street), 'the cheese grater', 'the shard' and 'the Gherkin' etc. Add to this the fact that Songbird Estates, (owners of the Canary Wharf office portfolio) have increased their underlying profits, and it appears that this sector will continue to perform well.
Industrial property
The internet is changing the way we shop. High business rates charges are making it increasingly unviable to retain traditional bricks and mortar shops. That said, the rise of 'click and collect' is a dominant trend in the retail sector with shops acting as collection points. However, warehouses are needed to store and distribute products to the shops concerned. Thus, warehouses and distribution units have seen strong demand. See Segro's and London Metric's activities in this sector.
Regional assets
There have been signs of increased demand for regional assets from investors. As stated above, investors appear to be keen to acquire assets that are capable of being actively managed and can produce a stable long term income. See LaSalle Investment Management's recent acquisition of a Birmingham shopping centre.
The rise of Chinese Insurance funds
Commercial property professionals would be wise to pay attention to investors from the Asia Pacific region. Chinese Insurance funds are relatively new to the market. A recent regulatory change allows such funds to invest 15% of their total assets in 'non self use real estate.' As a result, such funds are likely to target high transparency markets, such as the UK, for their Investment.
The rise of alternative sources of finance
Banks are unlikely to extend their commercial real estate loan books anytime soon. This creates opportunity for alternative sources of lending such as high net worth individuals, pension funds, Insurance and sovereign wealth funds etc. Alternative investors with strong cash flows are likely to continue to generate considerable activity in the commercial property sector.
These are just a few of the current Issues and trends in the commercial real estate sector at the moment.
Keep in mind that we have to pursue our goals. It is our duty to let things happen for side and for our Property Investing. Settle things that would help us to be successful is what we should do.
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